As filed electronically with the Securities and Exchange Commission on
April 17, 2000
(File No. 2-17613)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 114 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [ X ]
IVY FUND
(Exact Name of Registrant as Specified in Charter)
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 777-6472
C. William Ferris
Mackenzie Investment Management Inc.
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Name and Address of Agent for Service)
Copies to:
Joseph R. Fleming, Esq.
Dechert Price & Rhoads
Ten Post Office Square, South - Suite 1230
Boston, MA 02109
[ X ] It is proposed that this Post-Effective Amendment become
effective April 17, 2000, pursuant to paragraph (b)(1) of Rule 485.
<PAGE>
THIS POST-EFFECTIVE AMENDMENT NO. 114 CONTAINS CERTAIN EXHIBITS TO THE
REGISTRANT'S REGISTRATION STATEMENT AND DIVIDES INTO SEPARATE PROSPECTUSES AND
STATEMENTS OF ADDITIONAL INFORMATION, ONE SET FOR EACH OF IVY CUNDILL VALUE FUND
AND IVY NEXT WAVE INTERNET FUND, THE PROSPECTUSES AND STATEMENTS OF ADDITIONAL
INFORMATION IN WHICH THESE TWO FUNDS FORMERLY APPEARED TOGETHER. THE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION THAT ARE INCLUDED IN THIS
POST-EFFECTIVE AMENDMENT NO. 114 ARE TO BE USED CONCURRENTLY WITH AND SEPARATELY
FROM THE CURRENTLY EFFECTIVE PROSPECTUSES AND STATEMENTS OF ADDITIONAL
INFORMATION FOR THE OTHER NINETEEN SERIES OF THE REGISTRANT, WHICH ARE NOT
INCLUDED HEREWITH, BUT ARE INCORPORATED BY REFERENCE TO THIS FILING.
<PAGE>
IVY FUND
CROSS REFERENCE SHEET
Post-Effective Amendment No. 114 contains the Prospectuses and
Statements of Additional Information ("SAIs") to be used with Ivy Cundill Value
Fund and Ivy Next Wave Internet Fund, two of the twenty-one series of Ivy Fund
(the "Registrant"). The other nineteen series of the Registrant are described in
separate prospectuses and SAIs, which are not included herewith but are
incorporated by reference herein.
ITEMS REQUIRED BY FORM N-1A:
PART A: (Consisting of 4 Prospectuses, one relating to each of the
following: (1) Ivy Cundill Value Fund (Class A, B, C and I
Shares); (2) Ivy Cundill Value Fund (Advisor Class Shares); (3)
Ivy Next Wave Internet Fund (Class A, B, C and I Shares); and
(2) Ivy Next Wave Internet Fund (Advisor Class Shares).)
ITEM 1 FRONT AND BACK COVER PAGES: Front and back cover pages
ITEM 2 RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE: Summary
ITEM 3 RISK/RETURN SUMMARY: FEE TABLE: Summary
ITEM 4 INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS: Summary; Additional Information About Investment Strategies And
Risks
ITEM 5 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not applicable
ITEM 6 MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE: Management
ITEM 7 SHAREHOLDER INFORMATION: Shareholder Information
ITEM 8 DISTRIBUTION ARRANGEMENTS: Shareholder Information
ITEM 9 FINANCIAL HIGHLIGHTS INFORMATION: Not applicable
PART B (Consisting of 4 SAIs, one relating to each of the following:
(1) Ivy Cundill Value Fund (Class A, B, C and I Shares); (2) Ivy
Cundill Value Fund (Advisor Class Shares); (3) Ivy Next Wave
Internet Fund (Class A, B, C and I Shares); and (2) Ivy Next
Wave Internet Fund (Advisor Class Shares).)
ITEM 10 COVER PAGE AND TABLE OF CONTENTS: Cover Page; Table of Contents
ITEM 11 FUND HISTORY: General Information
ITEM 12 DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS: Investment
Objectives, Strategies and Risks; Investment Restrictions; Appendix A
ITEM 13 MANAGEMENT OF THE FUND: Investment Advisory And Other Services
ITEM 14 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees and
Officers
ITEM 15 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory And
Other Services
ITEM 16 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage Allocation
ITEM 17 CAPITAL STOCK AND OTHER SECURITIES: Capitalization and Voting Rights
ITEM 18 PURCHASE, REDEMPTION AND PRICING OF SHARES: Special Rights and
Privileges; Capitalization and Voting Rights; Net Asset Value
ITEM 19 TAXATION OF THE FUND: Taxation
ITEM 20 UNDERWRITERS: Distribution Services
ITEM 21 CALCULATION OF PERFORMANCE DATA: Performance Information
ITEM 22 FINANCIAL STATEMENTS: Financial Statements
<PAGE>
<PAGE> 1
[Ivy Funds Logo]
This is your prospectus from
IVY MACKENZIE
DISTRIBUTORS, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
800.456.5111
April 17, 2000 IVY CUNDILL VALUE FUND
Ivy Fund is a registered open-end investment company consisting
of twenty-one separate portfolios. This Prospectus relates to the
Class A, Class B, Class C and Class I shares of Ivy Cundill Value
Fund (the "Fund"). The Funds also offer Advisor Class shares,
which are described in a separate prospectus.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy or
accuracy of this Prospectus. Any representation to the contrary
is a criminal offense.
Investments in the Fund are not deposits of any bank and are not
federally insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
- -- CONTENTS
2 Summary
4 Additional information
about principal investment
strategies and risks
6 Management
7 Shareholder information
13 Account application
16 How to receive
more information about
the Fund
16 Shareholder Inquiries
<TABLE>
<S> <C> <C>
OFFICERS
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, Massachusetts
CUSTODIAN AUDITORS
Brown Brothers Harriman & Co. PricewaterhouseCoopers LLP
Boston, Massachusetts Fort Lauderdale, Florida
TRANSFER AGENT INVESTMENT MANAGER
Ivy Mackenzie Services Corp. Ivy Management, Inc.
PO Box 3022 700 South Federal Highway
Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432
800.777.6472 800.456.5111
</TABLE>
(Ivy Mackenzie Logo)
<PAGE> 2
[IVY LEAF LOGO]
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IVY CUNDILL VALUE FUND
- --------------------------------------------------------------------------------
(GLOBE ARTWORK)
2
IVY CUNDILL
VALUE FUND
- -- INVESTMENT OBJECTIVE
The Fund seeks long-term capital growth. Any income realized will be incidental.
- -- PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its assets in equity securities (including
common stock, preferred stock and securities convertible into common stock)
throughout the world, including emerging market countries, that the Fund's
management team believes are trading below their estimated "intrinsic value."
This is the perceived realizable market value, determined through the management
team's analysis of the companies' financial statements (and includes factors
such as earnings, cash flows, dividends, business prospects, management
capabilities and other catalysts for potentially increasing shareholder value).
Companies targeted for investment also generally have debt to total
capitalization levels below 35%. Up to 15% of the Fund's net assets may be
invested in illiquid securities.
To control its exposure to certain risks, the Fund might use certain derivative
investment techniques (such as foreign currency exchange transactions and
forward foreign currency contracts).
- -- PRINCIPAL RISKS
The main risks to which the Fund is exposed in carrying out its investment
strategies are the following:
MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the
securities held by other mutual funds with investment objectives that are
similar to those of the Fund.
MARKET RISK: Equity securities typically represent a proportionate ownership
interest in a company. The market value of equity securities can fluctuate
significantly even where "management risk" is not a factor. You could lose money
if you redeem your Fund shares at a time when the Fund's portfolio is not
performing as well as expected.
FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities
involves a number of economic, financial and political considerations that are
not associated with the U.S. markets and that could affect the Fund's
performance unfavorably, depending upon prevailing conditions at any given time.
Among these potential risks are:
- - greater price volatility;
- - comparatively weak supervision and regulation of securities exchanges, brokers
and issuers;
- - higher brokerage costs;
- - fluctuations in foreign currency exchange rates and related conversion costs;
- - adverse tax consequences; and
- - settlement delays.
The risks of investing in foreign securities are more acute in countries with
new or developing economies.
ILLIQUID SECURITY RISK: The Fund may not be able to readily dispose of illiquid
securities promptly at an acceptable price.
DERIVATIVES RISK: The Fund may, but is not required to, use a range of
derivative investment techniques to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements) or to enhance potential gain. The use of these derivative
investment techniques involves a number of risks, including the possibility of
default by the counterparty to the transaction and, to the extent the judgement
of the Fund's manager as to certain market movements is incorrect, the risk of
losses that are greater than if the derivative technique(s) had not been used.
<PAGE> 3
3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-- WHO SHOULD INVEST*
The Fund may be appropriate for investors seeking long-term growth
potential, but who can accept significant fluctuations in capital value in
the short-term.
*You should consult with your financial advisor before deciding whether the
Fund is an appropriate investment choice in light of your particular
financial needs and risk tolerance.
-- PERFORMANCE INFORMATION
The Fund commenced operations on April 17, 2000, therefore, no performance
information is available.
-- FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Fund:
<TABLE>
<CAPTION>
fees paid directly from
SHAREHOLDER FEES your investment
---------------------------------------------------------------------------
CLASS A* CLASS B CLASS C CLASS I
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering price)..... 5.75% none none none
Maximum deferred sales charge
(load) (as a percentage of
purchase price)................... none 5.00% 1.00% none
Maximum sales charge (load)
imposed on reinvested dividends... none none none none
Redemption fee**.................. none none none none
Exchange fee...................... none none none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND expenses that are
OPERATING EXPENSES deducted from Fund assets
- ------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees.......... 1.00% 1.00% 1.00% 1.00%
Distribution and/or
service (12b-1) fees..... 0.25% 1.00% 1.00% none
Other expenses***........ 0.95% 0.95% 0.95% 0.86%
Total annual Fund
operating expenses***.... 2.20% 2.95% 2.95% 1.86%
</TABLE>
*A CDSC of 1.00% may apply to Class A Shares that are redeemed
within two years of the end of the month in which they were
purchased.
**If you choose to receive your redemption proceeds via Federal
Funds wire, a $10 wire fee will be charged to your account.
***The Fund's Investment Manager has contractually agreed to
reimburse the Fund's expenses for the current fiscal year ending
December 31, 2000, to the extent necessary to ensure that the
Fund's Annual Fund Operating Expenses, when calculated at the
Fund level, do not exceed 1.95% of the Fund's average net assets
(excluding 12b-1 fees and certain other expenses). For each of
the following nine years, the Investment Manager will ensure that
these expenses do not exceed 2.50% of the Fund's average net
assets.
- --------------------------------------------------------------------------------
- -- EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated
and then redeem all of your shares at the end of those periods (with
additional information shown for Class B and Class C shares based on the
assumption that you do not redeem your shares at that time). The example
also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain, the
same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(no redemption) (no redemption)
YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st $ 785 $ 798 $298 $398 $298 $189
3rd 1,224 1,213 913 913 913 585
</TABLE>
<PAGE> 4
[IVY LEAF LOGO]
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IVY CUNDILL VALUE FUND
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4
ADDITIONAL INFORMATION
ABOUT PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
- -- PRINCIPAL STRATEGIES
The Fund seeks to achieve its principal objective of long-term capital growth by
investing primarily in the equity securities of companies throughout the world.
The investment approach of Peter Cundill & Associates, Inc. ("Cundill"), the
Fund's sub-advisor, is based on a contrarian "value" philosophy. Cundill looks
for securities that are trading below their estimated intrinsic value. To
determine the intrinsic value of a particular company, Cundill focuses primarily
on the company's financial statements. Cundill also considers factors such as
earnings, dividends, business prospects, management capabilities and potential
catalysts (such as a change in management) to realize shareholder value. A
security is purchased when the price reflects a significant discount to
Cundill's estimate of the company's intrinsic value. Given the bottom-up or
company-specific approach, Cundill does not forecast economies or corporate
earnings and does not rely on market timing.
The Fund may from time to time take a temporary defensive position and invest
without limit in U.S. Government securities, investment-grade debt securities,
and cash and cash equivalents such as commercial paper, short-term notes and
other money market securities. When the Fund assumes such a defensive position
it may not achieve its investment objective. Investing in debt securities also
involves both interest rate and credit risk.
- -- PRINCIPAL RISKS
GENERAL MARKET RISK:
As with any mutual fund, the value of the Fund's investments and the income
they generate will vary daily and generally reflect market conditions, interest
rates and other issuer-specific, political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent redemption
or exchange.
OTHER RISKS: The following is a description of the general risk characteristics
of the investment techniques that the Fund's advisor considers important in
achieving the Fund's investment objective or in managing the Fund's exposure to
risk (and that could therefore have a significant effect on the Fund's returns).
The risks of certain investment practices that are not principal strategies of
the Fund (such as borrowing) are also described below. Other investment
techniques that the Fund may use, but that are not likely to play a key role in
the Fund's overall investment strategy, are described in the Fund's Statement of
Additional Information (see back cover page for information on how you can
receive a free copy).
RISK CHARACTERISTICS:
- - EQUITY SECURITIES: The Fund invests primarily in equity securities, including
common stocks, preferred stocks and securities convertible into common stocks.
Equity securities typically represent a proportionate ownership interest in a
company. As a result, the value of equity securities rises and falls with a
company's success or failure. The market value of these securities 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.
- - FOREIGN SECURITIES: The Fund may invest in the securities of foreign issuers.
Investing in foreign securities involves a number of economic, financial and
political considerations that are not associated with the U.S. markets and
that could affect the Fund's performance favorably or unfavorably, depending
upon prevailing conditions at any given time. For example, the securities
markets of many foreign countries may be smaller, less liquid and subject to
greater price volatility than those in the U.S. Foreign investing
<PAGE> 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
may also involve brokerage costs and tax considerations that are not usually
present in the U.S. markets.
Other factors that can affect the value of the Fund's foreign investments
include the comparatively weak supervision and regulation by some foreign
governments of securities exchanges, brokers and issuers, and the fact that
many foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards. It may also be difficult to obtain reliable
information about the securities and business operations of certain foreign
issuers. Settlement of portfolio transactions may also be delayed due to local
restrictions or communication problems, which can cause the Fund to miss
attractive investment opportunities or impair its ability to dispose of
securities in a timely fashion (resulting in a loss if the value of the
securities subsequently declines).
- - FOREIGN CURRENCIES: A number of the Fund's securities may also be denominated
in foreign currencies, and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. Currency conversion
can also be costly.
- - SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities
are heightened in countries with developing economies. Among these additional
risks are the following:
- securities that are even less liquid and more volatile than those in more
developed foreign countries;
- less stable governments that are susceptible to sudden adverse actions (such
as nationalization of businesses, restrictions on foreign ownership or
prohibitions against repatriation of assets);
- increased settlement delays;
- unusually high inflation rates (which in extreme cases can cause the value
of a country's assets to erode sharply);
- unusually large currency fluctuations and currency conversion costs; and
- high national debt levels (which may impede an issuer's payment of principal
and/or interest on external debt).
- - ILLIQUID SECURITIES: Illiquid securities are assets that may not be disposed
of in the ordinary course of business within seven days at roughly the value
at which the investing fund has valued the assets. Some of these may be
"restricted securities," which cannot be sold to the public without
registration under the Securities Act of 1933 (in the absence of an exemption)
or because of other legal or contractual restrictions on resale. There is also
a risk that the investing fund will not be able to dispose of its illiquid
securities promptly at an acceptable price.
- - DERIVATIVE INVESTMENT TECHNIQUES: The Fund may, but is not required to, use
certain derivative investment techniques to hedge various market risks (such
as interest rates, currency exchange rates and broad or specific market
movements) or to enhance potential gain. Among the derivative techniques the
Fund might use are options, futures and forward foreign currency contracts.
Writing put and call options could cause the Fund to lose money by forcing the
sale or purchase of portfolio securities at inopportune times or for prices
higher (in the case of put options) or lower (in the case of call options)
than current market values, by limiting the amount of appreciation the Fund
can realize on its investments, or by causing the Fund to hold a security it
might otherwise sell.
Futures transactions (and related options) involve other types of risks. For
example, the variable degree of correlation between price movements of futures
contracts and price movements in the related portfolio position of the Fund
could cause losses on the hedging instrument that are greater than gains in
the value of the Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may
have no markets. As a result, the Fund might not be able to close out a
transaction before expiration without incurring substantial losses (and it is
possible that the transaction cannot even be closed). In addition, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium.
Foreign currency exchange transactions and forward foreign currency contracts
involve a number of risks, including the possibility of
<PAGE> 6
[IVY LEAF LOGO]
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IVY CUNDILL VALUE FUND
- --------------------------------------------------------------------------------
6
default by the counterparty to the transaction and, to the extent the
adviser's judgment as to certain market movements is incorrect, the risk of
losses that are greater than if the investment technique had not been used.
For example, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
There may also be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and the forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss. These investment techniques also tend to limit
any potential gain that might result from an increase in the value of the
hedged position.
- - INVESTMENT CONCENTRATION: Although the Fund will not invest more than 25% of
its total assets in any one industry and does not expect to focus its
investments in a single country, it may at any given time have a significant
percentage of its total assets in one or more market sectors and could have a
substantial portion of its total assets invested in a particular country. If
this were to occur, the Fund could experience a wider fluctuation in value
than funds with more diversified portfolios.
- -- OTHER IMPORTANT INFORMATION
BORROWING: For temporary or emergency purposes (such as meeting shareholder
redemption requests within the time periods specified under the Investment
Company Act of 1940), the Fund may borrow up to 10% of the value of its total
assets from qualified banks. Borrowing may exaggerate the effect on the Fund's
share value of any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
EUROPEAN MONETARY UNION: The Fund may have investments in Europe. On January 1,
1999, a new European currency called the euro was introduced and adopted for use
by eleven European countries. The transition to daily usage of the euro is
scheduled to be completed by December 31, 2001, at which time euro bills and
coins will be put into circulation. Certain European Union members, including
the United Kingdom, did not officially implement the euro and may cause market
disruptions when and if they decide to do so. Should this occur, the Fund could
experience investment losses.
MANAGEMENT
- -- INVESTMENT ADVISOR
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
Ivy Management, Inc. ("IMI", or the "Advisor"), located at Via Mizner Financial
Plaza, 700 South Federal Highway, Boca Raton, Florida 33432, provides investment
advisory and business management services to the Fund. IMI is an SEC-registered
investment adviser with over $7.2 billion in assets under management, and
provides similar services to the other twenty series of the Trust and the five
series of Mackenzie Solutions. For its services, IMI receives a fee that is
equal, on an annual basis, to 1.00% of the Fund's average net assets.
Cundill, an SEC-registered investment adviser located at 7733 Forsyth Blvd.,
Suite 2000, St. Louis, Missouri, 63105, serves as subadvisor to the Fund under
an agreement with IMI. Cundill began operations in 1984, and as of the end of
1999 (along with its affiliates) had approximately $1 billion in assets under
management. For its services, Cundill receives a fee from IMI that is equal, on
an annual basis, to 0.50% of the Fund's average net assets. Cundill's fee will
be paid by IMI out of the advisory fee that it receives from the Fund.
- -- PORTFOLIO MANAGEMENT
The Fund is managed by two investment professionals who are supported by a team
of research analysts who are responsible for providing information on regional
and country-specific economic and political developments and monitoring
individual companies.
- - F. Peter Cundill has over 30 years of value-investing experience and has
managed Mackenzie Financial Corporation's Cundill Value Fund since 1975. He is
a Chartered Financial Analyst, a Chartered Accountant and holds a Bachelor of
Commerce degree from McGill University, Montreal.
- - Leslie A. Ferris has over 16 years of investment industry experience in North
American equity and fixed income securities. Before joining Cundill in 1998,
she was a portfolio manager for
<PAGE> 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
the Trust and for the Kemper Funds. Ms. Ferris is a Chartered Financial
Analyst, a Certified Public Accountant, and holds an MBA from the University
of Chicago.
SHAREHOLDER INFORMATION
- -- PRICING OF FUND SHARES
The Fund calculates its share price by dividing the value of the Fund's net
assets by the total number of its shares outstanding as of the close of regular
trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading (normally any weekday
that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock exchange
is valued at the security's last quoted sale price on the exchange on which it
is principally traded.
If no sale is reported at that time, the average between the last bid and asked
prices is used. Securities and other Fund assets for which market prices are not
readily available are priced at their "fair value" as determined by the Advisor
in accordance with procedures approved by the Fund's Board of Trustees. The
Advisor may also price a foreign security at its "fair value" if events
materially affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the time as of
which the Fund prices its shares. Fair-value pricing under these circumstances
is designed to protect existing shareholders from the actions of short-term
investors trading into and out of the Fund in an attempt to profit from
short-term market movements. When such fair value pricing occurs, there may be
some period of time during which the Fund's share price and/or performance
information is not available.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent)
or by your registered securities dealer. Each purchase and redemption order is
subject to any applicable sales charge (see "Choosing the appropriate class of
shares"). Since the Fund normally invest in securities that are listed on
foreign exchanges that may trade on weekends or other days when the Fund does
not price its shares, each Fund's share value may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.
- -- HOW TO BUY SHARES
Please read these sections below carefully before investing.
CHOOSING THE APPROPRIATE CLASS OF SHARES:
If you do not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule 12b-1 under
the 1940 Act for its Class A, B and C shares that allow the Fund to pay
distribution and other fees for the sale and distribution of its shares and for
services provided to shareholders. Because fees are paid out of the Fund's
assets on an ongoing basis, over time they will increase the cost of your
investment and may cost you more than paying other types of sales charges.
The following table displays the various investment minimums, sales charges and
expenses that apply to each class.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum initial
investment*.......... $1,000 $1,000 $1,000 $5,000,000
Minimum subsequent
investment*.......... $100 $100 $100 $10,000
Initial sales
charge............... Maximum None None None
5.75%,
with
options
for a
reduction
or waiver
CDSC................. None, Maximum 1.00% for None
except on 5.00%, the first
certain declines year
NAV over six
purchases years
Service and
distribution fees.... 0.25% 0.75% 0.75% None
service distribution distribution
fee fee and fee and
0.25% 0.25%
service fee service fee
</TABLE>
*Minimum initial and subsequent investments for retirement plans are $25.
<PAGE> 8
[IVY LEAF LOGO]
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IVY CUNDILL VALUE FUND
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8
- -- ADDITIONAL PURCHASE INFORMATION
CLASS A SHARES: Class A shares are sold at a public offering price equal to
their net asset value per share plus an initial sales charge, as set forth below
(which is reduced as the amount invested increases):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SALES SALES PORTION OF
CHARGE AS A CHARGE AS A PUBLIC
PERCENTAGE PERCENTAGE OFFERING
OF PUBLIC OF NET PRICE
OFFERING AMOUNT RETAINED BY
AMOUNT INVESTED PRICE INVESTED DEALER
- ---------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000..... 5.75% 6.10% 5.00%
$50,000 but less than
$100,000.............. 5.25% 5.54% 4.50%
$100,000 but less than
$250,000.............. 4.50% 4.71% 3.75%
$250, 000 but less
than $500,000......... 3.00% 3.09% 2.50%
$500,000 or over*..... 0.00% 0.00% 0.00%
</TABLE>
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years
of the end of the month in which they were purchased.
Class A shares that are acquired through reinvestment of dividends or
distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
- "Rights of Accumulation" permits you to pay the sales charge that applies to
the cost or value (whichever is higher) of all Ivy Fund Class A shares you
own.
- A "Letter of Intent" permits you to pay the sales charge that would apply to
your cumulative purchase of Fund shares over a 13-month period (certain
restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE: You may purchase Class A shares at
NAV (without an initial sales charge or a CDSC) through any one of the following
methods:
- through certain investment advisors and financial planners who charge a
management, consulting or other fee for their services;
- under certain qualified retirement plans;
- as an employee or director of Mackenzie Investment Management Inc. or its
affiliates;
- as an employee of a selected dealer; or
- through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at
least $3 million in assets or over 500 or more eligible employees. Class B
shares of the Fund are made available to Plan participants at NAV without a
CDSC if the Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group Systematic Investment
Program" in the SAI.
Certain trust companies, bank trust departments, credit unions, savings and
loans and other similar organizations may also be exempt from the initial sales
charge on Class A shares.
You may also purchase Class A shares at NAV if you are investing at least
$500,000 through a dealer or agent. Ivy Mackenzie Distributors, Inc. ("IMDI"),
the Fund's distributor, may pay the dealer or agent (out of IMDI's own
resources) for its distribution assistance according to the following schedule:
<TABLE>
<CAPTION>
- ---------------------------------------------------
PURCHASE AMOUNT COMMISSION*
- ---------------------------------------------------
<S> <C>
First $3,000,000...................... 1.00%
Next $2,000,000....................... 0.50%
Over $5,000,000....................... 0.25%
</TABLE>
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years
of the end of the month in which they were purchased.
IMDI may from time to time pay a bonus or other cash incentive to dealers (other
than IMDI), including, those that employ a registered representative who during
a specified time period sells a minimum dollar amount of the shares of the Fund
and/or other funds distributed by IMDI.
Each Fund may, from time to time, waive the initial sales charge on its Class A
shares sold to clients of certain dealers meeting criteria established by IMDI.
This privilege will apply only to Class A shares of the Fund that are purchased
using proceeds obtained by such clients through redemption of another mutual
fund's shares on which a sales charge was paid. Purchases 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 two years after purchase.
CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to an
initial sales charge but are subject to a CDSC. If you redeem your Class C
shares within one year of purchase they will be subject to a CDSC of 1.00%, and
Class B shares
<PAGE> 9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9
redeemed within six years of purchase will be subject to a CDSC at the following
rates:
<TABLE>
<CAPTION>
- ----------------------------------------------------
CDSC AS A PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- ----------------------------------------------------
<S> <C>
First...................... 5.00%
Second..................... 4.00%
Third...................... 3.00%
Fourth..................... 3.00%
Fifth...................... 2.00%
Sixth...................... 1.00%
Seventh and thereafter..... 0.00%
</TABLE>
The CDSC for both Class B and Class C shares will be assessed on an amount equal
to the lesser of the current market value or the original purchase cost of the
shares being redeemed. No charge will be assessed on reinvested dividends or
distributions, or on shares held over six years. If your shares have appreciated
in value, each share redeemed will include both your original cost (subject to
the above CDSC schedule) and any proportional increase in market value (not
subject to a CDSC). If your shares have depreciated in value, the CDSC will be
assessed on the market value of the shares being redeemed. At the time of
redemption, the calculation is performed on a share-by-share basis as described
below.
Shares will be redeemed in the following order:
- - Shares held more than six years;
- - Shares acquired through reinvestment of dividends and distributions;
- - Shares subject to the lowest CDSC percentage, on a first-in, first-out basis
(1) with the portion of the lot attributable to capital appreciation, which is
not subject to a CDSC, redeemed first, then
(2) the portion of the lot attributable to your original basis, which is
subject to a CDSC.
The CDSC for Class B shares is waived for:
- - Certain post-retirement withdrawals from an IRA or other retirement plan if
you are over 59 1/2 years old.
- - Redemptions by certain eligible 401(a) and 401(k) plans and certain retirement
plan rollovers.
- - Redemptions resulting from a tax-free return of excess contribution to an IRA.
- - Withdrawals resulting from shareholder death or disability provided that the
redemption is requested within one year of death or disability.
- - Withdrawals through the Systematic Withdrawal Plan of up to 12% per year of
your account value at the time the plan is established.
Both Class B shares and Class C shares are subject to an ongoing service and
distribution fee at a combined annual rate of up to 1.00% of the portfolio's
average net assets attributable to its Class B or Class C shares. The ongoing
distribution fees will cause these shares to have a higher expense ratio than
that of Class A and Class I shares. IMDI uses the money that it receives from
the deferred sales charge and the distribution fees to cover various promotional
and sales related expenses, as well as expenses related to providing
distributions services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase, your Class B
shares will be converted automatically to Class A shares. Class A shares are
subject to lower annual expenses than Class B shares. The conversion from Class
B shares to Class A shares is not considered a taxable event for Federal income
tax purposes. Class C shares do not have a similar conversion privilege.
CLASS I SHARES: Class I shares are offered only to institutions and certain
individuals, and are not subject to an initial sales charge or a CDSC, nor to
ongoing service or distribution fees. Class I shares also bear lower fees than
Class A, Class B and Class C shares.
- -- SUBMITTING YOUR PURCHASE ORDER
INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the
end of this Prospectus. Enclose a check payable to Ivy Cundill Value Fund. You
should note on the check the class of shares you wish to purchase (see page 8
for minimum initial investments). Deliver your application materials to your
registered representative or selling broker, or send them to one of the
addresses below:
- - BY REGULAR MAIL:
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
<PAGE> 10
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY CUNDILL VALUE FUND
- --------------------------------------------------------------------------------
10
- - BY COURIER:
Ivy Mackenzie Services Corp.
700 South Federal Hwy., Ste. 300
Boca Raton, FL 33432-6114
- -- BUYING ADDITIONAL SHARES
There are several ways to increase your investment in the Fund:
- - BY MAIL: Send your check with a completed investment slip (attached to your
account statement) or written instructions indicating the account
registration, Fund number or name, and account number. Mail to one of the
addresses above.
- - THROUGH YOUR BROKER: Deliver to your registered representative or selling
broker the investment slip attached to your statement, or written
instructions, along with your payment.
- - BY WIRE: Purchases may also be made by wiring money from your bank account to
your Fund account. Your bank may charge a fee for wiring funds. Before wiring
any funds, please call IMSC at 800.777.6472. Wiring instructions are as
follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Account Registration
Your Fund Number and Account Number
- - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically
drawn each month from your bank account and invested as a purchase of shares
into your Fund account. Complete sections 6A and 7B of the Account
Application.
- -- HOW TO REDEEM SHARES
SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your
registered securities dealer or directly through IMSC. If you choose to redeem
through your registered securities dealer, the dealer is responsible for
properly transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your request:
- - BY MAIL: Send your written redemption request to IMSC at one of the addresses
on the left. Be sure that all registered owners listed on the account sign the
request. Medallion signature guarantees and supporting legal documentation may
be required. When you redeem, IMSC will normally send redemption proceeds to
you on the next business day, but may take up to seven days (or longer in the
case of shares recently purchased by check).
- - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint
or custodial account. To process your redemption order by telephone, you must
have telephone redemption privileges on your account. IMSC employs reasonable
procedures that require personal identification prior to acting on redemption
instructions communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may be liable for
any losses due to unauthorized or fraudulent telephone instructions. Requests
by telephone can only be accepted for amounts up to $50,000.
- - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds
electronically drawn each month from your Fund account and deposited directly
into your bank account. Certain minimum balances and minimum distributions
apply. Complete section 6B of the Account Application to add this feature to
your account.
RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through
a variety of payment methods:
- - BY CHECK: Unless otherwise instructed in writing, checks will be made payable
to the current account registration and sent to the address of record.
- - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a
pre-designated bank account. Your account will be charged $10 each time
redemption proceeds are wired to your bank, and your bank may also charge you
a fee for receiving a Federal Funds wire.
- - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only.
OTHER IMPORTANT REDEMPTION INFORMATION:
- - A CDSC may apply to certain Class A share redemptions, to Class B shares
redeemed within six years of purchase, and to Class C shares that are redeemed
within one year of purchase.
<PAGE> 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11
- - If you own shares of more than one class of the Fund, the Fund will redeem
first the shares having the highest 12b-1 fees, unless you instruct otherwise.
- - Any shares subject to a CDSC will be redeemed last unless you specifically
elect otherwise.
- - Shares will be redeemed in the order described under "Additional purchase
information--Class B and Class C Shares".
- - The Fund may (on 60 days' notice) redeem the accounts of shareholders whose
investment, including sales charges paid, has been less than $1,000 for more
than 12 months.
- - The Fund may take up to seven days (or longer in the case of shares recently
purchased by check) to send redemption proceeds.
- -- HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of another Ivy fund, subject to
certain restrictions (see "Important exchange information").
SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as
follows:
- - BY MAIL: Send your written exchange request to IMSC at one of the addresses on
page 10 of this Prospectus. Be sure that all registered owners listed on the
account sign the request.
- - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction.
To process your exchange order by telephone, you must have telephone exchange
privileges on your account. IMSC employs reasonable procedures that require
personal identification prior to acting on exchange instructions communicated
by telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund or IMSC may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
- - You must exchange into the same share class you currently own.
- -- Exchanges are considered
taxable events and may
result in a capital gain or a
capital loss for tax purposes.
- - It is the policy of the Fund to discourage the use of the exchange privilege
for the purpose of timing short-term market fluctuations. The Fund may
therefore limit the frequency of exchanges by a shareholder, charge a
redemption fee, or cancel a shareholder's exchange privilege if at any time it
appears that such market-timing strategies are being used. For example,
shareholders exchanging more than five times in a 12-month period may be
considered to be using market-timing strategies.
- -- DIVIDENDS, DISTRIBUTIONS AND TAXES
- - The Fund generally declares and pays dividends and capital gain distributions
(if any) at least once a year.
- - Dividends and distributions are "reinvested" in additional Fund shares unless
you request to receive them in cash.
- - Cash dividends and distributions can be sent to you:
- BY MAIL: a check will be mailed to the address of record unless otherwise
instructed.
- BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into
your bank account.
To change your dividend and/or distribution options, call IMSC at 800.777.6472.
Dividends ordinarily will vary from one class of shares to another. The Fund
intends to declare and pay dividends annually. The Fund will distribute net
investment income and net realized capital gains, if any, at least once a year.
The Fund may make an additional distribution of net investment income and net
realized capital gains to comply with the calendar year distribution requirement
under the excise tax provisions of Section 4982 of the Internal Revenue Code of
1986, as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to you as
ordinary income. If a portion of the Fund's income consists of dividends paid by
U.S. corporations, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains, regardless
<PAGE> 12
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY CUNDILL VALUE FUND
- --------------------------------------------------------------------------------
12
of how long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares. While
the Fund's manager may at times pursue strategies that result in tax efficient
outcomes for Fund shareholders, they do not generally manage the Fund to
optimize tax efficiencies.
If shares of the Fund are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid by the Fund during January of the
following calendar year. In certain years, you may be able to claim a credit or
deduction on your income tax return for your share of foreign taxes paid by the
Fund.
Upon the sale or exchange of your Fund shares, you may realize a capital gain or
loss, which will be long term or short term, generally depending upon how long
you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all distributions payable to you if you fail to provide the Fund with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
FINANCIAL HIGHLIGHTS
The Fund commenced operations on April 17, 2000, therefore, no financial
information is presented.
<PAGE> 13
Account
Application
FUND USE ONLY
___________________
Account Number
____________________
Dealer/Branch/Rep
____________________
Account Type/Soc Cd
[IVY FUNDS LOGO]
Please mail this application along with your
check to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, Florida 33431-0922
This application should not be used for retirement accounts for which Ivy
Fund (IBT) is custodian.
1 REGISTRATION
Name ____________________________________________________________
____________________________________________________________
____________________________________________________________
Address _________________________________________________________
City ______________________________ State __________ Zip _______
Phone # (day) (____)__________ Phone # (evening) (____)__________
<TABLE>
<S> <C> <C>
__ Individual __ UGMA/UTMA __ Sole proprietor
__ Joint tenant __ Corporation __ Trust
__ Estate __ Partnership __ Other
Date of trust ______________ Minor's state of residence_____________
</TABLE>
2 TAX I.D.
Citizenship: __ U.S. __ Other (please specify):____________
Social security # ___-___-____ or Tax identification #________
Under penalties of perjury, I certify by signing in Section 8 that: (1)
the number shown in this section is my correct taxpayer identification
number (TIN), and (2) I am not subject to backup withholding because: (a)
I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all
interest or dividends, or (b) the IRS has notified me that I am no longer
subject to backup withholding. (Cross out item (2) if you have been
notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.)
3 DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer name __________________________________________________________
Branch office address ________________________________________________
City ____________________________ State _____________ Zip ___________
Representative's name ________________________________________________
Representative's # _________________Representative's phone # _________
Authorized signature of dealer _______________________________________
4 INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $___________ made payable
to Ivy Cundill Value Fund.
Please invest it in:
<TABLE>
<CAPTION>
<S> <C>
__ Class A Class C
__ Class B Class I shares.
</TABLE>
B. I qualify for a reduction or elimination of the sales charge due to
the following privilege (applies only to Class A shares):
___ New Letter of Intent (if ROA or 90-day backdate privilege is
applicable, provide account(s) information below.)
___ ROA with the account(s) listed below.
___ Existing Letter of Intent with the account(s) listed below.
<TABLE>
<S> <C>
Fund name:_________________________ Fund name:__________________________
Account #:_________________________ Account #:__________________________
</TABLE>
If establishing a Letter of Intent, you will need to purchase Class A
shares over a 13-month period in accordance with the provisions in the
Prospectus. The aggregate amount of these purchases will be at least
equal to the amount indicated below (see Prospectus for minimum amount
required for reduced sales charges).
____$50,000 ____$100,000 ____$250,000 ____$500,000
C. FOR DEALER USE ONLY
<TABLE>
<S> <C> <C> <C>
Confirmed trade orders: __________________ __________________ __________________
Confirm Number Number of Shares Trade Date
</TABLE>
<PAGE> 14
DETACH ON PERFORATION TO MAIL
5 DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
A. ___ Reinvest all dividends and capital gains into additional shares
of the same class of a different Ivy fund account.
Fund name: _______________________________________________________
Account #: _______________________________________________________
B. ___ Pay all dividends in cash and reinvest capital gains into
additional shares of the same class in this account or a
different Ivy fund account.
Fund name: _______________________________________________________
Account #: _______________________________________________________
C. ___ Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT
TO: _____ the address listed in the registration
_____ the special payee listed in Section 7A (by mail)
_____ the special payee listed in Section 7B (by EFT)
6 OPTIONAL SPECIAL FEATURES
A. AUTOMATIC INVESTMENT METHOD (AIM)
___ I wish to have my bank account listed in section 7B automatically
debited via EFT on a predetermined frequency and invested into my
Ivy Cundill Value Fund account listed below.
1. Withdraw $____________________ for each time period indicated below
and invest my bank proceeds into the following Ivy Cundill Value
Fund account:
Share class: ___Class A ___Class B ___Class C
Account #: _______________________________________________________
2. Debit my bank account:
___ Annually (on the ___ day of the month of ______________________.
___ Semiannually (on the ___ day of the months of _____ and ______).
___ Quarterly (on the ___ day of the first/second/third
month of each calendar quarter). (CIRCLE ONE)
___ Monthly*___ once per month on the _____ day
___ twice per month on the _____ days
___ 3 times per month on the _____ days
___ 4 times per month on the _____ days
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)**
___ I wish to have my Ivy Cundill Value Fund account automatically
debited on a predetermined frequency and the proceeds sent to me per
my instructions below.
1. Withdraw ($50 minimum) $_____ for each time period indicated
below from the following Ivy International Fund account:
Share class: __ Class A __ Class B __ Class C
Account #: _______________________________________________________
2. Withdraw from my Ivy Cundill Value Fund account:
___ Annually (on the _____ day of the month of __________).
___ Semiannually (on the _____ day of the months of _____ and _____).
___ Quarterly (on the _____ day of the first/second/third
month of each calendar quarter. (CIRCLE ONE)
___ Monthly*___ once per month on the _____ day
___ twice per month on the _____ days
___ 3 times per month on the _____ days
___ 4 times per month on the _____ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration
___ sent to the special payee listed in section 7A or 7B.
___ invested into additional shares of the same class of a
different Ivy fund:
Fund name: _________________________________________________________
Account #: _________________________________________________________
Note: A minimum balance of $5,000 is required to establish a SWP.
6. OPTIONAL SPECIAL FEATURES (CONT.)
C. FEDERAL FUNDS WIRE
FOR REDEMPTION PROCEEDS** ___ yes ___ no
By checking "yes" immediately above, I authorize IMSC to honor telephone
instructions for the redemption of Fund shares up to $50,000. Proceeds may be
wire transferred to the bank account designated ($1,000 minimum). (COMPLETE
SECTION 7B).
D. TELEPHONE EXCHANGES** ___ yes ___ no
By checking "yes" immediately above, I authorize exchanges by telephone among
the Ivy funds upon instructions from any person as more fully described in the
Prospectus. To change this option once established, written instructions must be
received from the shareholder of record or the current registered
representative. If neither box is checked, the telephone exchange privilege will
be provided automatically.
E. TELEPHONIC REDEMPTIONS** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized to
honor telephone instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the redemption shall
not exceed $50,000 and the proceeds are to be payable to the shareholder of
record and mailed to the address of record. To change this option once
established, written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be provided
automatically.
* There must be a period of at least seven calendar days between each
investment (AIM)/withdrawal (SWP) period.
** This option may not be used if shares are issued in certificate form.
7 SPECIAL PAYEE
A. MAILING ADDRESS: Please send all disbursements to this payee:
Name of bank or individual _______________________________________________
Account # (if applicable) ________________________________________________
Street ___________________________________________________________________
City _______________________________________ State _______ Zip __________
B. FED WIRE/EFT INFORMATION
Financial institution ____________________________________________________
ABA # ____________________________________________________________________
Account # ________________________________________________________________
Street ___________________________________________________________________
City _______________________________________ State _______ Zip __________
(PLEASE ATTACH A VOIDED CHECK.)
8 SIGNATURES
Investors should be aware that the failure to check "No" under Section
6D or 6E above means that the Telephone Exchange/ Redemption Privileges
will be provided. The Fund employs reasonable procedures that require
personal identification prior to acting on exchange/redemption
instructions communicated by telephone to confirm that such instructions
are genuine. In the absence of such procedures, the Fund may be liable for
any losses due to unauthorized or fraudulent telephone instructions.
Please see "How to exchange shares" and "How to redeem shares" in the
Prospectus for more information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the
Fund for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its terms
are incorporated in this application by reference. I am certifying my
taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
_________________________________________ ___________________________
Signature of Owner, Custodian, Trustee or Date
Corporate Officer
_________________________________________ ___________________________
Signature of Joint Owner, Co-Trustee or Date
Corporate Officer
(Remember to sign Section 8)
<PAGE> 15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-- QUOTRON SYMBOLS AND CUSIP NUMBERS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
CLASS SYMBOL CUSIP
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Ivy Cundill Value Fund Class A * 465898880
Ivy Cundill Value Fund Class B * 465898799
Ivy Cundill Value Fund Class C * 465898781
Ivy Cundill Value Fund Class I * 465898773
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
(Ivy Funds Logo)
-- HOW TO RECEIVE MORE
INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained
in the Fund's Statement of Additional Information dated April 17, 2000
(the "SAI"), which is incorporated by reference into this Prospectus,
and is available upon request and without charge from the Distributor
at the following address and phone number.
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Ste. 300
Boca Raton, FL 33432
800.456.5111
Information about the Fund (including the SAI) may also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. (please
call 1-202-942-8090 for further details). Information about the Fund is
also available on the EDGAR Database on the SEC's Internet Website
(www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by electronic request at the following e-mail
address: [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-1028
01ICVADV0400
-- SHAREHOLDER
INQUIRIES
Please call
Ivy Mackenzie
Services Corp.,
the Fund's transfer agent,
regarding any other
inquiries about the Fund
at 1.800.777.6472,
e-mail us at
[email protected]
or visit our web site at
www.ivymackenzie.com.
<PAGE> 17
[Ivy Funds Logo]
This is your prospectus from
IVY MACKENZIE
DISTRIBUTORS, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
800.456.5111
April 17, 2000 IVY CUNDILL VALUE FUND ADVISOR CLASS SHARES
Ivy Fund is a registered open-end investment company consisting
of twenty-one separate portfolios. This Prospectus relates to the
Advisor Class shares of Ivy Cundill Value Fund (the "Fund"). The
Fund also offers Class A, Class B, Class C and Class I shares,
which are described in a separate prospectus.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy or
accuracy of this Prospectus. Any representation to the contrary
is a criminal offense.
Investments in the Fund are not deposits of any bank and are not
federally insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
-- CONTENTS
2 Summary
4 Additional information
about principal investment
strategies and risks
6 Management
7 Shareholder information
13 Account application
16 How to receive
more information
about the Fund
16 Shareholder inquiries
<TABLE>
<S> <C> <C>
OFFICERS
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, Massachusetts
CUSTODIAN AUDITORS
Brown Brothers Harriman & Co. PricewaterhouseCoopers LLP
Boston, Massachusetts Fort Lauderdale, Florida
TRANSFER AGENT INVESTMENT MANAGER
Ivy Mackenzie Services Corp. Ivy Management, Inc.
PO Box 3022 700 South Federal Highway
Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432
800.777.6472 800.456.5111
</TABLE>
(Ivy Mackenzie Logo)
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IVY CUNDILL VALUE FUND
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(GLOBE ARTWORK)
2
IVY CUNDILL
VALUE FUND
- -- INVESTMENT OBJECTIVE
The Fund seeks long-term capital growth. Any income realized will be incidental.
- -- PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its assets in equity securities (including
common stock, preferred stock and securities convertible into common stock)
throughout the world, including emerging market countries, that the Fund's
management team believes are trading below their estimated "intrinsic value."
This is the perceived realizable market value, determined through the management
team's analysis of the companies' financial statements (and includes factors
such as earnings, cash flows, dividends, business prospects, management
capabilities and other catalysts for potentially increasing shareholder value).
Companies targeted for investment also generally have favorable debt to total
capitalization levels below 35%. Up to 15% of the Fund's net assets may be
invested in illiquid securities.
To control its exposure to certain risks, the Fund might use certain derivative
investment techniques (such as foreign currency exchange transactions and
forward foreign currency contracts).
- -- PRINCIPAL RISKS
The main risks to which the Fund is exposed in carrying out its investment
strategies are the following:
MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the
securities held by other mutual funds with investment objectives that are
similar to those of the Fund.
MARKET RISK: Equity securities typically represent a proportionate ownership
interest in a company. The market value of equity securities can fluctuate
significantly even where "management risk" is not a factor. You could lose money
if you redeem your Fund shares at a time when the Fund's portfolio is not
performing as well as expected.
FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities
involves a number of economic, financial and political considerations that are
not associated with the U.S. markets and that could affect the Fund's
performance unfavorably, depending upon prevailing conditions at any given time.
Among these potential risks are:
- - greater price volatility;
- - comparatively weak supervision and regulation of securities exchanges, brokers
and issuers;
- - higher brokerage costs;
- - fluctuations in foreign currency exchange rates and related conversion costs;
- - adverse tax consequences; and
- - settlement delays.
The risks of investing in foreign securities are more acute in countries with
emerging or developing economies.
ILLIQUID SECURITY RISK: The Fund may not be able to readily dispose of illiquid
securities promptly at an acceptable price.
DERIVATIVES RISK: The Fund may, but is not required to, use a range of
derivative investment techniques to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements) or to enhance potential gain. The use of these derivative
investment techniques involves a number of risks, including the possibility of
default by the counterparty to the transaction and, to the extent the judgement
of the Fund's manager as to certain market movements is incorrect, the risk of
losses that are greater than if the derivative technique(s) had not been used.
<PAGE> 19
3
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-- WHO SHOULD INVEST*
The Fund may be appropriate for investors seeking long-term growth
potential, but who can accept significant fluctuations in capital value in
the short-term.
*You should consult with your financial advisor before deciding whether the
Fund is an appropriate investment choice in light of your particular
financial needs and risk tolerance.
-- PERFORMANCE INFORMATION
The Fund commenced operations on April 17, 2000, therefore, no performance
information is available.
-- FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Fund:
<TABLE>
<CAPTION>
fees paid directly from
SHAREHOLDER FEES your investment
---------------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as
a percentage of offering price)..................... none
Maximum deferred sales charge (load) (as a
percentage of purchase price)....................... none
Maximum sales charge (load) imposed on reinvested
dividends........................................... none
Redemption fee*..................................... none
Exchange fee........................................ none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND expenses that are
OPERATING EXPENSES deducted from Fund assets
- ------------------------------------------------------------------
<S> <C>
Management fees........................ 1.00%
Distribution and/or service (12b-1)
fees................................... 0.00%
Other expenses**....................... 0.95%
Total annual Fund operating
expenses**............................. 1.95%
</TABLE>
*If you choose to receive your redemption proceeds via Federal
Funds wire, a $10 wire fee will be charged to your account.
**The Fund's Investment Manager has contractually agreed to
reimburse the Fund's expenses for the current fiscal year ending
December 31, 2000, to the extent necessary to ensure that the
Fund's Annual Fund Operating Expenses, when calculated at the Fund
level, do not exceed 1.95% of the Fund's average net assets
(excluding 12b-1 fees and certain other expenses). For each of the
following nine years, the Investment Manager will ensure that
these expenses do not exceed 2.50% of the Fund's average net
assets.
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-- EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be as
follows:
<TABLE>
<CAPTION>
- --------------
CLASS
YEAR A
- --------------
<S> <C>
1st $198
3rd 612
</TABLE>
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IVY CUNDILL VALUE FUND
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4
ADDITIONAL INFORMATION
ABOUT PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
- -- PRINCIPAL STRATEGIES
The Fund seeks to achieve its principal objective of long-term capital growth by
investing primarily in the equity securities of companies throughout the world.
The investment approach of Peter Cundill & Associates, Inc. ("Cundill"), the
Fund's sub-advisor, is based on a contrarian "value" philosophy. Cundill looks
for securities that are trading below their estimated intrinsic value. To
determine the intrinsic value of a particular company, Cundill focuses primarily
on the company's financial statements. Cundill also considers factors such as
earnings, dividends, business prospects, management capabilities and potential
catalysts (such as a change in management) to realize shareholder value. A
security is purchased when the price reflects a significant discount to
Cundill's estimate of the company's intrinsic value. Given the bottom-up or
company-specific approach, Cundill does not forecast economies or corporate
earnings and does not rely on market timing.
The Fund may from time to time take a temporary defensive position and invest
without limit in U.S. Government securities, investment-grade debt securities,
and cash and cash equivalents such as commercial paper, short-term notes and
other money market securities. When the Fund assumes such a defensive position
it may not achieve its investment objective. Investing in debt securities also
involves both interest rate and credit risk.
- -- PRINCIPAL RISKS
GENERAL MARKET RISK:
As with any mutual fund, the value of the Fund's investments and the income
they generate will vary daily and generally reflect market conditions, interest
rates and other issuer-specific, political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent redemption
or exchange.
OTHER RISKS: The following is a description of the general risk characteristics
of the investment techniques that the Fund's advisor considers important in
achieving the Fund's objective or in managing the Fund's exposure to risks (and
that could therefore have a significant effect on the Fund's returns). The risks
of certain investment practices that are not principal strategies of the Fund
(such as borrowing) are also described below. Other investment techniques that
the Fund may use, but that are not likely to play a key role in their overall
investment strategies, are described in the Fund's Statement of Additional
Information (see back cover page for information on how you can receive a free
copy).
RISK CHARACTERISTICS:
- - EQUITY SECURITIES: The Fund invests primarily in equity securities, including
common stocks, preferred stocks and securities convertible into common stocks.
Equity securities typically represent a proportionate ownership interest in a
company. As a result, the value of equity securities rises and falls with a
company's success or failure. The market value of these securities 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.
- - FOREIGN SECURITIES: The Fund may invest in the securities of foreign issuers.
Investing in foreign securities involves a number of economic, financial and
political considerations that are not associated with the U.S. markets and
that could affect the Fund's performance favorably or unfavorably, depending
upon prevailing conditions at any given time. For example, the securities
markets of many foreign countries may be smaller, less liquid and subject to
greater price volatility than those in the U.S. Foreign investing
<PAGE> 21
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5
may also involve brokerage costs and tax considerations that are not usually
present in the U.S. markets.
Other factors that can affect the value of the Fund's foreign investments
include the comparatively weak supervision and regulation by some foreign
governments of securities exchanges, brokers and issuers, and the fact that
many foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards. It may also be difficult to obtain reliable
information about the securities and business operations of certain foreign
issuers. Settlement of portfolio transactions may also be delayed due to local
restrictions or communication problems, which can cause the Fund to miss
attractive investment opportunities or impair its ability to dispose of
securities in a timely fashion (resulting in a loss if the value of the
securities subsequently declines).
- - FOREIGN CURRENCIES: A number of the Fund's securities may also be denominated
in foreign currencies, and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. Currency conversion
can also be costly.
- - SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities
are heightened in countries with developing economies. Among these additional
risks are the following:
- securities that are even less liquid and more volatile than those in more
developed foreign countries;
- less stable governments that are susceptible to sudden adverse actions (such
as nationalization of businesses, restrictions on foreign ownership or
prohibitions against repatriation of assets);
- increased settlement delays;
- unusually high inflation rates (which in extreme cases can cause the value
of a country's assets to erode sharply);
- unusually large currency fluctuations and currency conversion costs; and
- high national debt levels (which may impede an issuer's payment of principal
and/or interest on external debt).
- - ILLIQUID SECURITIES: Illiquid securities are assets that may not be disposed
of in the ordinary course of business within seven days at roughly the value
at which the investing fund has valued the assets. Some of these may be
"restricted securities," which cannot be sold to the public without
registration under the Securities Act of 1933 (in the absence of an exemption)
or because of other legal or contractual restrictions on resale. There is also
a risk that the investing fund will not be able to dispose of its illiquid
securities promptly at an acceptable price.
- - DERIVATIVE INVESTMENT TECHNIQUES: The Fund may, but is not required to, use
certain derivative investment techniques to hedge various market risks (such
as interest rates, currency exchange rates and broad or specific market
movements) or to enhance potential gain. Among the derivative techniques the
Fund might use are options, futures and forward foreign currency contracts.
Writing put and call options could cause the Fund to lose money by forcing the
sale or purchase of portfolio securities at inopportune times or for prices
higher (in the case of put options) or lower (in the case of call options)
than current market values, by limiting the amount of appreciation the Fund
can realize on its investments, or by causing the Fund to hold a security it
might otherwise sell.
Futures transactions (and related options) involve other types of risks. For
example, the variable degree of correlation between price movements of futures
contracts and price movements in the related portfolio position of the Fund
could cause losses on the hedging instrument that are greater than gains in
the value of the Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may
have no markets. As a result, the Fund might not be able to close out a
transaction before expiration without incurring substantial losses (and it is
possible that the transaction cannot even be closed). In addition, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium.
Foreign currency exchange transactions and forward foreign currency contracts
involve a number of risks, including the possibility of
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6
default by the counterparty to the transaction and, to the extent the
adviser's judgment as to certain market movements is incorrect, the risk of
losses that are greater than if the investment technique had not been used.
For example, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
There may also be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and the forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss. These investment techniques also tend to limit
any potential gain that might result from an increase in the value of the
hedged position.
- - INVESTMENT CONCENTRATION: Although the Fund will not invest more than 25% of
its total assets in any one industry and does not expect to focus its
investments in a single country, it may at any given time have a significant
percentage of its total assets in one or more market sectors and could have a
substantial portion of its total assets invested in a particular country. If
this were to occur, the Fund could experience a wider fluctuation in value
than funds with more diversified portfolios.
- -- OTHER IMPORTANT INFORMATION
BORROWING: For temporary or emergency purposes (such as meeting shareholder
redemption requests within the time periods specified under the Investment
Company Act of 1940), the Fund may borrow up to 10% of the value of its total
assets from qualified banks. Borrowing may exaggerate the effect on the Fund's
share value of any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
EUROPEAN MONETARY UNION: The Fund may have investments in Europe. On January 1,
1999, a new European currency called the euro was introduced and adopted for use
by eleven European countries. The transition to daily usage of the euro is
scheduled to be completed by December 31, 2001, at which time euro bills and
coins will be put into circulation. Certain European Union members, including
the United Kingdom, did not officially implement the euro and may cause market
disruptions when and if they decide to do so. Should this occur, the Fund could
experience investment losses.
MANAGEMENT
- -- INVESTMENT ADVISOR
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
Ivy Management, Inc. ("IMI", or the "Advisor"), located at Via Mizner Financial
Plaza, 700 South Federal Highway, Boca Raton, Florida 33432, provides investment
advisory and business management services to the Fund. IMI is an SEC-registered
investment adviser with over $7.2 billion in assets under management, and
provides similar services to the other twenty series of the Trust and the five
series of Mackenzie Solutions. For its services, IMI receives a fee that is
equal, on an annual basis, to 1.00% of the Fund's average net assets.
Cundill, an SEC-registered investment adviser located at 7733 Forsyth Blvd.,
Suite 2000, St. Louis, Missouri, 63105, serves as subadvisor to the Fund under
an agreement with IMI. Cundill began operations in 1984, and as of the end of
1999 (along with its affiliates) had approximately $1 billion in assets under
management. For its services, Cundill receives a fee from IMI that is equal, on
an annual basis, to 0.50% of the Fund's average net assets. Cundill's fee will
be paid by IMI out of the advisory fee that it receives from the Fund.
- -- PORTFOLIO MANAGER
The Fund is managed by two investment professionals who are supported by a team
of research analysts who are responsible for providing information on regional
and country-specific economic and political developments and monitoring
individual companies.
- - F. Peter Cundill has over 30 years of value-investing experience and has
managed Mackenzie Financial Corporation's Cundill Value Fund since 1975. He is
a Chartered Financial Analyst, a Chartered Accountant and holds a Bachelor of
Commerce degree from McGill University, Montreal.
- - Leslie A. Ferris has over 16 years of investment industry experience in North
American equity and fixed income securities. Before joining Cundill in 1998,
she was a portfolio manager for
<PAGE> 23
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7
the Trust and for the Kemper Funds. Ms. Ferris is a Chartered Financial
Analyst, a Certified Public Accountant, and holds an MBA from the University
of Chicago.
SHAREHOLDER INFORMATION
- -- PRICING OF FUND SHARES
The Fund calculates its share price by dividing the value of the Fund's net
assets by the total number of its shares outstanding as of the close of regular
trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading (normally any weekday
that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock exchange
is valued at the security's last quoted sale price on the exchange on which it
is principally traded.
If no sale is reported at that time, the average between the last bid and asked
prices is used. Securities and other Fund assets for which market prices are not
readily available are priced at their "fair value" as determined by the Advisor
in accordance with procedures approved by the Fund's Board of Trustees. The
Advisor may also price a foreign security at its "fair value" if events
materially affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the time as of
which the Fund prices its shares. Fair-value pricing under these circumstances
is designed to protect existing shareholders from the actions of short-term
investors trading into and out of the Fund in an attempt to profit from
short-term market movements. When such fair value pricing occurs, there may be
some period of time during which the Fund's share price and/or performance
information is not available.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent)
or by your registered securities dealer. Since the Fund normally invest in
securities that are listed on foreign exchanges that may trade on weekends or
other days when the Fund does not price its shares, the Fund's share value may
change on days when shareholders will not be able to purchase or redeem the
Fund's shares.
- -- HOW TO BUY SHARES
Please read these sections below carefully before investing.
Advisor Class shares are offered through this prospectus only to the following
investors:
- - Trustees or other fiduciaries purchasing shares for employee benefit plans
that are sponsored by organizations that have at least 1,000 employees;
- - Any account with assets of at least $10,000 if (a) a financial planner, trust
company, bank trust department or registered investment adviser has investment
direction, and where the investor pays such person as compensation for his
advice and other services an annual fee of at least 0.50% on the assets in the
account, or (b) such account is established under a "wrap fee" program and the
account holder pays the sponsor of he program an annual fee of at least 0.50%
on the assets in the account;
- - Officers and Trustees of Ivy Fund and Mackenzie Solutions (and their
relatives);
- - Directors or employees of Mackenzie Investment Management Inc. or its
affiliates;
- - Directors, officers, partners, registered representatives, employees and
retired employees (and their relatives) of dealers having a sales agreement
with IMDI (or trustees or custodians of any qualified retirement plan or IRA
established for the benefit of any such person).
The following investment minimums, sales charges and expenses apply.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------
<S> <C>
Minimum initial investment*................................. $10,000
Minimum subsequent investment*.............................. $250
Initial sales charge........................................ None
CDSC........................................................ None
Service and distribution fees............................... None
</TABLE>
*Minimum initial and subsequent investments for retirement plans are $25.
<PAGE> 24
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IVY CUNDILL VALUE FUND
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8
- -- SUBMITTING YOUR PURCHASE ORDER
INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the
end of this Prospectus. Enclose a check payable to Ivy Cundill Value Fund. You
should note on the check the class of shares you wish to purchase (see page 7
for minimum initial investments). Deliver your application materials to your
registered representative or selling broker, or send them to one of the
addresses below:
- - BY REGULAR MAIL:
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
- - BY COURIER:
Ivy Mackenzie Services Corp.
700 South Federal Hwy., Ste. 300
Boca Raton, FL 33432-6114
- -- BUYING ADDITIONAL SHARES
There are several ways to increase your investment in the Fund:
- - BY MAIL: Send your check with a completed investment slip (attached to your
account statement) or written instructions indicating the account
registration, Fund number or name, and account number. Mail to one of the
addresses above.
- - THROUGH YOUR BROKER: Deliver to your registered representative or selling
broker the investment slip attached to your statement, or written
instructions, along with your payment.
- - BY WIRE: Purchases may also be made by wiring money from your bank account to
your Fund account. Your bank may charge a fee for wiring funds. Before wiring
any funds, please call IMSC at 800.777.6472. Wiring instructions are as
follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Account Registration
Your Fund Number and Account Number
- - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically
drawn each month from your bank account and invested as a purchase of shares
into your Fund account. Complete sections 6A and 7B of the Account
Application.
- -- HOW TO REDEEM SHARES
SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your
registered securities dealer or directly through IMSC. If you choose to redeem
through your registered securities dealer, the dealer is responsible for
properly transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your request:
- - BY MAIL: Send your written redemption request to IMSC at one of the addresses
on the left. Be sure that all registered owners listed on the account sign the
request. Medallion signature guarantees and supporting legal documentation may
be required. When you redeem, IMSC will normally send redemption proceeds to
you on the next business day, but may take up to seven days (or longer in the
case of shares recently purchased by check).
- - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint
or custodial account. To process your redemption order by telephone, you must
have telephone redemption privileges on your account. IMSC employs reasonable
procedures that require personal identification prior to acting on redemption
instructions communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may be liable for
any losses due to unauthorized or fraudulent telephone instructions. Requests
by telephone can only be accepted for amounts up to $50,000.
- - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds
electronically drawn each month from your Fund account and deposited directly
into your bank account. Certain minimum balances and minimum distributions
apply. Complete section 6B of the Account Application to add this feature to
your account.
RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through
a variety of payment methods:
- - BY CHECK: Unless otherwise instructed in writing, checks will be made payable
to the current account registration and sent to the address of record.
<PAGE> 25
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9
- - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a
pre-designated bank account. Your account will be charged $10 each time
redemption proceeds are wired to your bank, and your bank may also charge you
a fee for receiving a Federal Funds wire.
- - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only.
OTHER IMPORTANT REDEMPTION INFORMATION:
- - If you own shares of more than one class of the Fund, the Fund will redeem
first the shares having the highest 12b-1 fees, unless you instruct otherwise.
- - The Fund may (on 60 days notice) redeem the accounts of shareholders whose
investment, including sales charges paid, has been less than $1,000 for more
than 12 months.
- - The Fund may take up to seven days (or longer in the case of shares recently
purchased by check to send redemption proceeds.
- -- HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of another Ivy fund, subject to
certain restrictions (see "Important exchange information").
SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as
follows:
- - BY MAIL: Send your written exchange request to IMSC at one of the addresses on
page 8 of this Prospectus. Be sure that all registered owners listed on the
account sign the request.
- - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction.
To process your exchange order by telephone, you must have telephone exchange
privileges on your account. IMSC employs reasonable procedures that require
personal identification prior to acting on exchange instructions communicated
by telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund or IMSC may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
- - You must exchange into the same share class you currently own.
- -- Exchanges are considered
taxable events and may
result in a capital gain or a
capital loss for tax purposes.
- - It is the policy of the Fund to discourage the use of the exchange privilege
for the purpose of timing short-term market fluctuations. The Fund may
therefore limit the frequency of exchanges by a shareholder, charge a
redemption fee, or cancel a shareholder's exchange privilege if at any time it
appears that such market-timing strategies are being used. For example,
shareholders exchanging more than five times in a 12-month period may be
considered to be using market-timing strategies.
- -- DIVIDENDS, DISTRIBUTIONS AND TAXES
- - The Fund generally declares and pays dividends and capital gain distributions
(if any) at least once a year.
- - Dividends and distributions are "reinvested" in additional Fund shares unless
you request to receive them in cash.
- - Cash dividends and distributions can be sent to you:
- BY MAIL: a check will be mailed to the address of record unless otherwise
instructed.
- BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into
your bank account.
To change your dividend and/or distribution options, call IMSC at 800.777.6472.
Dividends ordinarily will vary from one class of shares to another. The Fund
intends to declare and pay dividends annually. The Fund will distribute net
investment income and net realized capital gains, if any, at least once a year.
The Fund may make an additional distribution of net investment income and net
realized capital gains to comply with the calendar year distribution requirement
under the excise tax provisions of Section 4982 of the Internal Revenue Code of
1986, as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to you as
ordinary income. If a portion of the Fund's income consists of dividends paid by
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10
U.S. corporations, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains, regardless of
how long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares. While
the Fund's managers may at times pursue strategies that result in tax efficient
outcomes for the Fund shareholders, they do not generally manage the Fund to
optimize tax efficiencies.
If shares of the Fund are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid by the Fund during January of the
following calendar year. In certain years, you may be able to claim a credit or
deduction on your income tax return for your share of foreign taxes paid by the
Fund.
Upon the sale or exchange of your Fund shares, you may realize a capital gain or
loss, which will be long-term or short-term, generally depending upon how long
you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all distributions payable to you if you fail to provide the Fund with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
FINANCIAL HIGHLIGHTS
The Fund commenced operations on April 17, 2000, therefore, no financial
information is presented.
<PAGE> 27
11
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
<PAGE> 28
12
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
<PAGE> 29
Account
Application
FUND USE ONLY
___________________
Account Number
___________________
Dealer/Branch/Rep
___________________
Account Type/Soc Cd
[IVY FUNDS LOGO]
Please mail this application along with your
check to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, Florida 33431-0922
This application should not be used for retirement accounts for which Ivy
Fund (IBT) is custodian.
1 REGISTRATION
Name ____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Address _________________________________________________________________
City _______________________________________ State ________ Zip _________
Phone # (day) (__) ______________ Phone # (evening) (__) ________________
___ Individual ___ UGMA/UTMA ___ Sole proprietor
___ Joint tenant ___ Corporation ___ Trust
___ Estate ___ Partnership ___ Other ____________
Date of trust ______________ Minor's state of residence _______________
2 TAX I.D.
Citizenship: ___ U.S. ___ Other (please specify): _______________
Social security # ____-____-________ or Tax identification ____-_________
Under penalties of perjury, I certify by signing in Section 8 that: (1)
the number shown in this section is my correct taxpayer identification
number (TIN), and (2) I am not subject to backup withholding because: (a)
I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all
interest or dividends, or (b) the IRS has notified me that I am no longer
subject to backup withholding. (Cross out item (2) if you have been
notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.)
3 DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer name _____________________________________________________________
Branch office address ___________________________________________________
City _______________________________________ State ________ Zip _________
Representative's name ___________________________________________________
Representative's # ________________ Representative's phone # ___________
Authorized signature of dealer __________________________________________
4 INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $ _______ made payable to
Ivy Cundill Value Fund. Please invest it in: ____ Advisor class shares
B. FOR DEALER USE ONLY
Confirmed trade orders: ______________ ________________ __________
Confirm Number Number of Shares Trade Date
<PAGE> 30
DETACH ON PERFORATION TO MAIL
5 DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
A. ___ Reinvest all dividends and capital gains into additional shares
of the same class of a different Ivy fund account.
Fund name: ________________________________________________________
Account #: ________________________________________________________
B. ___ Pay all dividends in cash and reinvest capital gains into
additional shares of the same class in this account or a
different Ivy fund account.
Fund name: ________________________________________________________
Account #: ________________________________________________________
C. ___ Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT
TO: ___ the address listed in the registration
___ the special payee listed in Section 7A (by mail)
___ the special payee listed in Section 7B (by EFT)
6 OPTIONAL SPECIAL FEATURES
A. AUTOMATIC INVESTMENT METHOD (AIM)
___ I wish to have my bank account listed in section 7B automatically
debited via EFT on a predetermined frequency and invested into my
Ivy Cundill Value Fund account listed below.
1. Withdraw $ ______ for each time period indicated below and invest my
bank proceeds in Advisor class shares of Ivy Cundill Value Fund:
Account #: __________________________________________________________
2. Debit my bank account:
___ Annually (on the ___ day of the month of ______________________).
___ Semiannually (on the ___ day of the months of ___________________
and ___________________).
___ Quarterly (on the ___ day of the first/second/third
month of each calendar quarter). (CIRCLE ONE)
___ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)**
___ I wish to have my Ivy Cundill Value Fund account automatically
debited on a predetermined frequency and the proceeds sent to me per
my instructions below.
1. Withdraw ($200 minimum) $ ___ for each time period indicated
below from the Ivy Cundill Value Fund account:
Account #: __________________________________________________________
2. Withdraw from my Ivy Cundill Value Fund account:
___ Annually (on the ___ day of the month of ______________________).
___ Semiannually (on the ___ day of the months of ___________________
and ___________________).
___ Quarterly (on the ___ day of the first/second/third
month of each calendar quarter). (CIRCLE ONE)
___ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration
___ sent to the special payee listed in section 7A or 7B.
___ invested into additional Advisor class shares of a
different Ivy fund:
Fund name: __________________________________________________________
Account #: __________________________________________________________
Note: A minimum balance of $10,000 is required to establish a SWP.
6. OPTIONAL SPECIAL FEATURES (CONT.)
C. FEDERAL FUNDS WIRE
FOR REDEMPTION PROCEEDS** ___ yes ___ no
By checking "yes" immediately above, I authorize IMSC to honor telephone
instructions for the redemption of Fund shares up to $50,000. Proceeds may
be wire transferred to the bank account designated ($1,000 minimum).
(COMPLETE SECTION 7B).
D. TELEPHONE EXCHANGES** ___ yes ___ no
By checking "yes" immediately above, I authorize exchanges by telephone
among the Ivy funds upon instructions from any person as more fully
described in the Prospectus. To change this option once established,
written instructions must be received from the shareholder of record or
the current registered representative.
If neither box is checked, the telephone exchange privilege will be
provided automatically.
E. TELEPHONIC REDEMPTIONS** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized
to honor telephone instructions from any person as more fully described in
the Prospectus for the redemption of Fund shares. The amount of the
redemption shall not exceed $50,000 and the proceeds are to be payable to
the shareholder of record and mailed to the address of record. To change
this option once established, written instructions must be received from
the shareholder of record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be
provided automatically.
* There must be a period of at least seven calendar days between each
investment (AIM)/withdrawal (SWP) period.
** This option may not be used if shares are issued in certificate form.
7 SPECIAL PAYEE
A. MAILING ADDRESS: Please send all disbursements to this payee:
Name of bank or individual _______________________________________________
Account # (if applicable) ________________________________________________
Street ___________________________________________________________________
City _______________________________________ State ________ Zip __________
B. FED WIRE/EFT INFORMATION
Financial institution ____________________________________________________
ABA # ____________________________________________________________________
Account # ________________________________________________________________
Street ___________________________________________________________________
City _______________________________________ State ________ Zip __________
(PLEASE ATTACH A VOIDED CHECK.)
8 SIGNATURES
Investors should be aware that the failure to check "No" under Section
6D or 6E above means that the Telephone Exchange/ Redemption Privileges
will be provided. The Fund employs reasonable procedures that require
personal identification prior to acting on exchange/redemption
instructions communicated by telephone to confirm that such instructions
are genuine. In the absence of such procedures, the Fund may be liable for
any losses due to unauthorized or fraudulent telephone instructions.
Please see "How to exchange shares" and "How to redeem shares" in the
Prospectus for more information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the
Fund for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its terms
are incorporated in this application by reference. I am certifying my
taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
________________________________________________________ _______________
Signature of Owner, Custodian, Trustee or Date
Corporate Officer
________________________________________________________ _______________
Signature of Joint Owner, Co-Trustee or Date
Corporate Officer
(Remember to sign Section 8)
<PAGE> 31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-- QUOTRON SYMBOLS AND CUSIP NUMBERS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
CLASS SYMBOL CUSIP
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Ivy Cundill Value Advisor Class Shares * 465898765
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
(Ivy Funds Logo)
-- HOW TO RECEIVE MORE
INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained
in the Fund's Statement of Additional Information dated April 17, 2000
(the "SAI"), which is incorporated by reference into this Prospectus,
and is available upon request and without charge from the Distributor
at the following address and phone number.
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Ste. 300
Boca Raton, FL 33432
800.456.5111
Information about the Fund (including the SAI) may also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. (please
call 1-202-942-8090 for further details). Information about the Fund is
also available on EDGAR Database on the SEC's Internet Website
(www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by electronic request at the following e-mail
address: [email protected], or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-1028
01ICVFX0400
-- SHAREHOLDER
INQUIRIES
Please call
Ivy Mackenzie
Services Corp.,
the Fund's transfer agent,
regarding any other
inquiries about the Fund
at 1.800.777.6472,
e-mail us at
[email protected]
or visit our web site at
www.ivymackenzie.com.
<PAGE> 33
[Ivy Funds Logo]
This is your prospectus from
IVY MACKENZIE
DISTRIBUTORS, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
800.456.5111
April 17, 2000 IVY NEXT WAVE INTERNET FUND
Ivy Fund is a registered open-end investment company consisting
of twenty-one separate portfolios. This Prospectus relates to the
Class A, Class B, Class C and Class I shares of Ivy Next Wave
Internet Fund (the "Fund"). The Fund also offers Advisor Class
shares, which are described in a separate prospectus.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy or
accuracy of this Prospectus. Any representation to the contrary
is a criminal offense.
Investments in the Fund are not deposits of any bank and are not
federally insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
-- CONTENTS
2 Summary
4 Additional information
about principal investment
strategies and risks
5 Management
5 Shareholder information
13 Account application
16 How to receive
more information
about the fund
16 Shareholder inquiries
<TABLE>
<S> <C> <C>
OFFICERS
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, Massachusetts
CUSTODIAN AUDITORS
Brown Brothers Harriman & Co. PricewaterhouseCoopers LLP
Boston, Massachusetts Fort Lauderdale, Florida
TRANSFER AGENT INVESTMENT MANAGER
Ivy Mackenzie Services Corp. Ivy Management, Inc.
PO Box 3022 700 South Federal Highway
Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432
800.777.6472 800.456.5111
</TABLE>
(Ivy Mackenzie Logo)
<PAGE> 34
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEXT WAVE INTERNET FUND
- --------------------------------------------------------------------------------
(GLOBE ARTWORK)
2
IVY NEXT WAVE
INTERNET FUND
- -- INVESTMENT OBJECTIVE
The Fund seeks long-term capital growth. Any income realized will be incidental.
- -- PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its assets in the equity securities (including
common stock, preferred stock and securities convertible into common stock) of
companies of any size that have at least 50% of their assets dedicated to or
derive 50% of their gross sales revenues or profits from the design,
development and/or marketing of Internet-related services or products.
The Fund may purchase securities through initial public offerings.
The Internet is a global computer network connecting millions of users worldwide
through the use of a standard common addressing system and communications
protocol. The Fund's management team believes that the Internet is a fertile
growth area, and actively seeks to position the Fund to benefit from this growth
by investing in companies engaged in Internet-related business activities that
may deliver rapid earnings growth and potentially high investment returns.
- -- PRINCIPAL RISKS
The main risks to which the Fund is exposed in carrying out its investment
strategies are the following:
MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the
securities held by other mutual funds with investment objectives that are
similar to those of the Fund.
MARKET RISK: Equity securities typically represent a proportionate ownership
interest in a company. The market value of equity securities can fluctuate
significantly even where "management risk" is not a factor. You could lose money
if you redeem your Fund shares at a time when the Fund's portfolio is not
performing as well as expected.
SMALL- AND MEDIUM-SIZED COMPANY RISK: Many of the companies in which the Fund
may invest have relatively small market capitalizations. Securities of smaller
companies may be subject to more abrupt or erratic market movements than the
securities of larger, more established companies, since smaller companies tend
to be thinly traded and because they are subject to greater business risk.
Transaction costs in smaller-company stocks may also be higher than those of
larger companies.
IPO RISK: 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. The 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 also
limited, so it is likely that IPO securities will represent a smaller component
of the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
INDUSTRY-CONCENTRATION RISK: Since the Fund focuses its investment in securities
of companies engaged in Internet-related business activities, the Fund could
experience wider fluctuations in value than funds with more diversified
portfolios.
<PAGE> 35
3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-- WHO SHOULD INVEST*
The Fund may be appropriate for investors seeking long-term growth
potential, but who can accept significant fluctuations in capital value in
the short-term.
*You should consult with your financial advisor before deciding whether the
Fund is an appropriate investment choice in light of your particular
financial needs and risk tolerance.
-- PERFORMANCE INFORMATION
The Fund commenced operations on April 17, 2000, and so no performance
information is available.
-- FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Fund:
<TABLE>
<CAPTION>
fees paid directly from
SHAREHOLDER FEES your investment
---------------------------------------------------------------
CLASS A* CLASS B CLASS C CLASS I
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering
price)...................... 5.75% none none none
Maximum deferred sales
charge (load) (as a
percentage of purchase
price)...................... none 5.00% 1.00% none
Maximum sales charge (load)
imposed on reinvested
dividends................... none none none none
Redemption fee**............ none none none none
Exchange fee................ none none none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND expenses that are
OPERATING EXPENSES deducted from Fund assets
- -------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees........ 1.00% 1.00% 1.00% 1.00%
Distribution and/or
service (12b-1) fees... 0.25% 1.00% 1.00% none
Other expenses***...... 0.95% 0.95% 0.95% 0.86%
Total annual Fund
operating
expenses***............ 2.20% 2.95% 2.95% 1.86%
</TABLE>
*A CDSC of 1.00% may apply to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
**If you choose to receive your redemption proceeds via Federal
Funds wire, a $10 wire fee will be charged to your account.
***The Fund's Investment Manager has contractually agreed to
reimburse the Fund's expenses for the current fiscal year ending
December 31, 2000, to the extent necessary to ensure that the
Fund's Annual Fund Operating Expenses, when calculated at the
Fund level, do not exceed 1.95% of the Fund's average net assets
(excluding 12b-1 fees and certain other expenses). For each of
the following nine years, the Investment Manager will ensure that
these expenses do not exceed 2.50% of the Fund's average net
assets.
- --------------------------------------------------------------------------------
-- EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated
and then redeem all of your shares at the end of those periods (with
additional information shown for Class B and Class C shares based on the
assumption that you do not redeem your shares at that time). The example
also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(no redemption) (no redemption)
YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st... $ 785 $ 798 $298 $398 $298 $189
3rd... 1,224 1,213 913 913 913 585
</TABLE>
<PAGE> 36
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEXT WAVE INTERNET FUND
- --------------------------------------------------------------------------------
4
ADDITIONAL INFORMATION
ABOUT PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
- -- PRINCIPAL STRATEGIES
The Fund seeks to achieve its principal objective of long-term capital growth by
investing primarily in the equity securities of companies of any size engaged in
the design, development and/or marketing of Internet-related services or
products. The Fund may also invest in companies that are expected to benefit
indirectly from the Internet and related business applications.
The Internet is a global computer network connecting millions of users worldwide
through the use of a standard common addressing system and communications
protocol. People and businesses throughout the world use the Internet to
retrieve and exchange information, conduct business, and access a vast array of
services, products and other resources. Rapid advances in the Internet business
environment in recent years have stimulated unprecedented growth. While this is
no guarantee of future performance, the Fund's management team believes that
this industry offers substantial opportunities for long-term capital
appreciation.
The Fund may from time to time take a temporary defensive position and invest
without limit in U.S. Government securities, investment-grade debt securities
(which are those rated Baa or above by Moody's or BBB or above by S&P), and cash
and cash equivalents such as commercial paper, short-term notes and other money
market securities. When the Fund assumes such a defensive position it may not
achieve its investment objective. Investing in debt securities also involves
both interest rate and credit risk.
- -- PRINCIPAL RISKS
GENERAL MARKET RISK:
As with any mutual fund, the value of the Fund's investments and the income
they generate will vary daily and generally reflect market conditions, interest
rates and other issuer-specific, political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent redemption
or exchange.
OTHER RISKS: The following is a description of the general risk characteristics
of the investment techniques that the Fund's adviser considers important in
achieving the Fund's investment objective or in managing its exposure to risk
(and that could therefore have a significant effect on the Fund's returns). The
risks of certain investment practices that are not principal strategies of the
Fund (such as borrowing) are also described below. Other investment techniques
that the Fund may use, but that are not likely to play a key role in its overall
investment strategy, are described in the Fund's Statement of Additional
Information (see back cover page for information on how you can receive a free
copy).
RISK CHARACTERISTICS:
- - EQUITY SECURITIES: The Fund invests primarily in equity securities, including
common stocks, preferred stocks and securities convertible into common stocks.
Equity securities typically represent a proportionate ownership interest in a
company. As a result, the value of equity securities rises and falls with a
company's success or failure. The market value of these securities 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. Investors in the Fund should note that
these risks are heightened in the case of securities issued through IPOs.
- - INVESTMENT CONCENTRATION: Since the Fund focuses its investment in securities
of companies engaged in Internet-related business activities, the Fund could
experience wider fluctuations in value than funds with more diversified
portfolios.
<PAGE> 37
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
- -- OTHER IMPORTANT INFORMATION
- - BORROWING: For temporary or emergency purposes (such as meeting shareholder
redemption requests within the time periods specified under the Investment
Company Act of 1940), the Fund may borrow up to 10% of the value of its total
assets from qualified banks. Borrowing may exaggerate the effect on the Fund's
share value of any increase or decrease in the value of the securities it
holds. Money borrowed will also be subject to interest costs.
MANAGEMENT
- -- INVESTMENT ADVISOR
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
Ivy Management, Inc. ("IMI", or the "Advisor"), located at Via Mizner Financial
Plaza, 700 South Federal Highway, Boca Raton, Florida 33432, provides investment
advisory and business management services to the Fund. IMI is an SEC-registered
investment advisor with over $7.2 billion in assets under management, and
provides similar services to the other twenty series of the Trust and the five
series of Mackenzie Solutions. For its services, IMI receives a fee that is
equal, on an annual basis, to 1.00% of the Fund's average net assets.
- -- PORTFOLIO MANAGEMENT
A team of professional portfolio managers employed by IMI makes investment
decisions for the Fund.
SHAREHOLDER INFORMATION
- -- PRICING OF FUND SHARES
The Fund calculates its share price by dividing the value of the Fund's net
assets by the total number of its shares outstanding as of the close of regular
trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading (normally any weekday
that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock exchange
is valued at the security's last quoted sale price on the exchange on which it
is principally traded.
If no sale is reported at that time, the average between the last bid and asked
prices is used. Securities and other Fund assets for which market prices are not
readily available are priced at their "fair value" as determined by the Advisor
in accordance with procedures approved by the Fund's Board of Trustees. The
Advisor may also price a foreign security at its "fair value" if events
materially affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the time as of
which the Fund prices its shares. Fair-value pricing under these circumstances
is designed to protect existing shareholders from the actions of short-term
investors trading into and out of the Fund in an attempt to profit from
short-term market movements. When such fair value pricing occurs, there may be
some period of time during which the Fund's share price and/or performance
information is not available.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent)
or by your registered securities dealer. Each purchase and redemption order is
subject to any applicable sales charge (see "Choosing the appropriate class of
shares"). Since the Fund normally invests in securities that are listed on
foreign exchanges that may trade on weekends or other days when the Fund does
not price its shares, the Fund's share value may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.
- -- HOW TO BUY SHARES
Please read these sections below carefully before investing.
CHOOSING THE APPROPRIATE CLASS OF SHARES: If you do not specify on your Account
Application which class of shares you are purchasing, it will be assumed that
you are purchasing Class A shares.
<PAGE> 38
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEXT WAVE INTERNET FUND
- --------------------------------------------------------------------------------
6
The Fund has adopted separate distribution plans pursuant to Rule 12b-1 under
the 1940 Act for its Class A, B and C shares that allow the Fund to pay
distribution and other fees for the sale and distribution of its shares and for
services provided to shareholders. Because these fees are paid out of the Fund's
assets on an ongoing basis, over time they will increase the cost of your
investment and may cost you more than paying other types of sales charges.
The following table displays the various investment minimums, sales charges and
expenses that apply to each class.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum initial
investment*.......... $1,000 $1,000 $1,000 $5,000,000
Minimum subsequent
investment*.......... $100 $100 $100 $10,000
Initial sales
charge............... Maximum None None None
5.75%,
with
options
for a
reduction
or waiver
CDSC................. None, Maximum 1.00% for None
except on 5.00%, the first
certain declines year
NAV over six
purchases years
Service and
distribution fees.... 0.25% 0.75% 0.75% None
service distribution distribution
fee fee and fee and
0.25% 0.25%
service fee service
fee
</TABLE>
*Minimum initial and subsequent investments for retirement plans are $25.
- -- ADDITIONAL PURCHASE INFORMATION
CLASS A SHARES: Class A shares are sold at a public offering price equal to
their net asset value per share plus an initial sales charge, as set forth below
(which is reduced as the amount invested increases):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SALES SALES PORTION OF
CHARGE AS A CHARGE AS A PUBLIC
PERCENTAGE PERCENTAGE OFFERING
OF PUBLIC OF NET PRICE
OFFERING AMOUNT RETAINED BY
AMOUNT INVESTED PRICE INVESTED DEALER
- ---------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000..... 5.75% 6.10% 5.00%
$50,000 but less than
$100,000.............. 5.25% 5.54% 4.50%
$100,000 but less than
$250,000.............. 4.50% 4.71% 3.75%
$250, 000 but less
than $500,000......... 3.00% 3.09% 2.50%
$500,000 or over*..... 0.00% 0.00% 0.00%
</TABLE>
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years
of the end of the month in which they were purchased.
Class A shares that are acquired through reinvestment of dividends or
distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
- "Rights of Accumulation" permits you to pay the sales charge that applies to
the cost or value (whichever is higher) of all Ivy Fund Class A shares you
own.
- A "Letter of Intent" permits you to pay the sales charge that would apply to
your cumulative purchase of Fund shares over a 13-month period (certain
restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE: You may purchase Class A shares at
NAV (without an initial sales charge or a CDSC) through any one of the following
methods:
- through certain investment advisors and financial planners who charge a
management, consulting or other fee for their services;
- under certain qualified retirement plans;
- as an employee or director of Mackenzie Investment Management Inc. or its
affiliates;
- as an employee of a selected dealer; or
- through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at
least $3 million in assets or over 500 or more eligible employees. Class B
shares of the Fund are made available to Plan participants at NAV without a
CDSC if the Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group Systematic Investment
Program" in the SAI.
Certain trust companies, bank trust departments, credit unions, savings and
loans and other similar organizations may also be exempt from the initial sales
charge on Class A shares.
You may also purchase Class A shares at NAV if you are investing at least
$500,000 through a dealer or agent. Ivy Mackenzie Distributors, Inc. ("IMDI"),
the Fund's distributor, may pay the dealer or agent (out of IMDI's own
resources) for
<PAGE> 39
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
its distribution assistance according to the following schedule:
<TABLE>
<CAPTION>
- --------------------------------------------------
PURCHASE AMOUNT COMMISSION*
- --------------------------------------------------
<S> <C>
First $3,000,000..................... 1.00%
Next $2,000,000...................... 0.50%
Over $5,000,000...................... 0.25%
</TABLE>
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years
of the end of the month in which they are purchased.
IMDI may from time to time pay a bonus or other cash incentive to dealers (other
than IMDI), including those that employ a registered representative who during a
specified time period sells a minimum dollar amount of the shares of the Fund
and/or other funds distributed by IMDI.
Each Fund may, from time to time, waive the initial sales charge on its Class A
shares sold to clients of certain dealers meeting criteria established by IMDI.
This privilege will apply only to Class A shares of a Fund that are purchased
using proceeds obtained by such clients through redemption of another mutual
fund's shares on which a sales charge was paid. Purchases 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 two years after purchase.
CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to an
initial sales charge but are subject to a CDSC. If you redeem your Class C
shares within one year of purchase they will be subject to a CDSC of 1.00%, and
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the following rates:
<TABLE>
<CAPTION>
- ----------------------------------------------------
CDSC AS A PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- ----------------------------------------------------
<S> <C>
First...................... 5.00%
Second..................... 4.00%
Third...................... 3.00%
Fourth..................... 3.00%
Fifth...................... 2.00%
Sixth...................... 1.00%
Seventh and thereafter..... 0.00%
</TABLE>
The CDSC for both Class B and Class C shares will be assessed on an amount equal
to the lesser of the current market value or the original purchase cost of the
shares being redeemed. No charge will be assessed on reinvested dividends or
distributions, or on shares held over six years. If your shares have appreciated
in value, each share redeemed will include both your original cost (subject to
the above CDSC schedule) and any proportional increase in market value (not
subject to a CDSC). If your shares have depreciated in value, the CDSC will be
assessed on the market value of the shares being redeemed. At the time of
redemption, the calculation is performed on a share-by-share basis as described
below.
Shares will be redeemed in the following order:
- - Shares held more than six years;
- - Shares acquired through reinvestment of dividends and distributions;
- - Shares subject to the lowest CDSC percentage, on a first-in, first-out basis
(1) with the portion of the lot attributable to capital appreciation, which is
not subject to a CDSC, redeemed first, then
(2) the portion of the lot attributable to your original basis, which is
subject to a CDSC.
The CDSC for Class B shares is waived for:
- - Certain post-retirement withdrawals from an IRA or other retirement plan if
you are over 59 1/2 years old.
- - Redemptions by certain eligible 401(a) and 401(k) plans and certain retirement
plan rollovers.
- - Redemptions resulting from a tax-free return of excess contribution to an IRA.
- - Withdrawals resulting from shareholder death or disability provided that the
redemption is requested within one year of death or disability.
- - Withdrawals through the Systematic Withdrawal Plan of up to 12% per year of
your account value at the time the plan is established.
Both Class B shares and Class C shares are subject to an ongoing service and
distribution fee at a combined annual rate of up to 1.00% of the portfolio's
average net assets attributable to its Class B or Class C shares. The ongoing
distribution fees will cause these shares to have a higher expense ratio than
that of Class A and Class I shares. IMDI uses the money that it receives from
the deferred sales charge and the distribution fees to cover various promotional
and sales related expenses, as well as expenses related to providing
distributions services, such as compensating selected dealers and agents for
selling these shares.
<PAGE> 40
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEXT WAVE INTERNET FUND
- --------------------------------------------------------------------------------
8
Approximately eight years after the original date of purchase, your Class B
shares will be converted automatically to Class A shares. Class A shares are
subject to lower annual expenses than Class B shares. The conversion from Class
B shares to Class A shares is not considered a taxable event for Federal income
tax purposes. Class C shares do not have a similar conversion privilege.
CLASS I SHARES: Class I shares are offered only to institutions and certain
individuals, and are not subject to an initial sales charge or a CDSC, nor to
ongoing service or distribution fees. Class I shares also bear lower fees than
Class A, Class B and Class C shares.
- -- SUBMITTING YOUR PURCHASE ORDER
INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the
end of this Prospectus. Enclose a check payable to Ivy Next Wave Internet Fund.
You should note on the check the class of shares you wish to purchase (see page
6 for minimum initial investments). Deliver your application materials to your
registered representative or selling broker, or send them to one of the
addresses below:
- - BY REGULAR MAIL:
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
- - BY COURIER:
Ivy Mackenzie Services Corp.
700 South Federal Hwy., Ste. 300
Boca Raton, FL 33432-6114
- -- BUYING ADDITIONAL SHARES
There are several ways to increase your investment in the Fund:
- - BY MAIL: Send your check with a completed investment slip (attached to your
account statement) or written instructions indicating the account
registration, Fund number or name, and account number. Mail to one of the
addresses above.
- - THROUGH YOUR BROKER: Deliver to your registered representative or selling
broker the investment slip attached to your statement, or written
instructions, along with your payment.
- - BY WIRE: Purchases may also be made by wiring money from your bank account to
your Fund account. Your bank may charge a fee for wiring funds. Before wiring
any funds, please call IMSC at 800.777.6472. Wiring instructions are as
follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Account Registration
Your Fund Number and Account Number
- - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically
drawn each month from your bank account and invested as a purchase of shares
into your Fund account. Complete sections 6A and 7B of the Account
Application.
- -- HOW TO REDEEM SHARES
SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your
registered securities dealer or directly through IMSC. If you choose to redeem
through your registered securities dealer, the dealer is responsible for
properly transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your request:
- - BY MAIL: Send your written redemption request to IMSC at one of the addresses
on the left. Be sure that all registered owners listed on the account sign the
request. Medallion signature guarantees and supporting legal documentation may
be required. When you redeem, IMSC will normally send redemption proceeds to
you on the next business day, but may take up to seven days (or longer in the
case of shares recently purchased by check).
- - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint
or custodial account. To process your redemption order by telephone, you must
have telephone redemption privileges on your account. IMSC employs reasonable
procedures that require personal identification prior to acting on redemption
instructions communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may be liable for
any losses due to unauthorized or fraudulent telephone instructions. Requests
by telephone can only be accepted for amounts up to $50,000.
- - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds
<PAGE> 41
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9
electronically drawn each month from your Ivy Next Wave Internet Fund account
and deposited directly into your bank account. Certain minimum balances and
minimum distributions apply. Complete section 6B of the Account Application to
add this feature to your account.
RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through
a variety of payment methods:
- - BY CHECK: Unless otherwise instructed in writing, checks will be made payable
to the current account registration and sent to the address of record.
- - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a
pre-designated bank account. Your account will be charged $10 each time
redemption proceeds are wired to your bank, and your bank may also charge you
a fee for receiving a Federal Funds wire.
- - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only.
IMPORTANT REDEMPTION INFORMATION:
- - A CDSC may apply to certain Class A share redemptions, to Class B shares
redeemed within six years of purchase, and to Class C shares that are redeemed
within one year of purchase.
- - If you own shares of more than one class of the Fund, the Fund will redeem
first the shares having the highest 12b-1 fees, unless you instruct otherwise.
- - Within a class of shares, any shares subject to a CDSC will be redeemed last
unless you specifically elect otherwise.
- - Shares will be redeemed in the order described under "Additional purchase
information--Class B and Class C Shares".
- - The Fund may (on 60 days' notice) redeem the accounts of shareholders whose
investment, including sales charges paid, has been less than $1,000 for more
than 12 months.
- - The Fund may take up to seven days (or longer in the case of shares recently
purchased by check) to send redemption proceeds.
- -- HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of another Ivy fund, subject to
certain restrictions (see "Important exchange information").
SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as
follows:
- - BY MAIL: Send your written exchange request to IMSC at one of the addresses on
page 8 of this Prospectus. Be sure that all registered owners listed on the
account sign the request.
- - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction.
To process your exchange order by telephone, you must have telephone exchange
privileges on your account. IMSC employs reasonable procedures that require
personal identification prior to acting on exchange instructions communicated
by telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund or IMSC may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
- - You must exchange into the same share class you currently own.
- -- Exchanges are considered
taxable events and may
result in a capital gain or a
capital loss for tax purposes.
- - It is the policy of the Fund to discourage the use of the exchange privilege
for the purpose of timing short-term market fluctuations. The Fund may
therefore limit the frequency of exchanges by a shareholder, charge a
redemption fee (in the case of certain funds), or cancel a shareholder's
exchange privilege if at any time it appears that such market-timing
strategies are being used. For example, shareholders exchanging more than five
times in a 12-month period may be considered to be using market-timing
strategies.
- -- DIVIDENDS, DISTRIBUTIONS AND TAXES
- - The Fund generally declares and pays dividends and capital gain distributions
(if any) at least once a year.
<PAGE> 42
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEXT WAVE INTERNET FUND
- --------------------------------------------------------------------------------
10
- - Dividends and distributions are "reinvested" in additional Fund shares unless
you request to receive them in cash.
- - Cash dividends and distributions can be sent to you:
- BY MAIL: a check will be mailed to the address of record unless otherwise
instructed.
- BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited
into your bank account.
To change your dividend and/or distribution options, call IMSC at 800.777.6472.
Dividends ordinarily will vary from one class of shares to another. The Fund
intends to declare and pay dividends annually. The Fund will distribute net
investment income and net realized capital gains, if any, at least once a year.
The Fund may make an additional distribution of net investment income and net
realized capital gains to comply with the calendar year distribution requirement
under the excise tax provisions of Section 4982 of the Internal Revenue Code of
1986, as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to you as
ordinary income. If a portion of the Fund's income consists of dividends paid by
U.S. corporations, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains, regardless of
how long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares. While
the Fund's manager may at times pursue strategies that result in tax efficient
outcomes for Fund shareholders, they do not generally manage the Fund to
optimize tax efficiencies.
If shares of the Fund are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid by the Fund during January of the
following calendar year. In certain years, you may be able to claim a credit or
deduction on your income tax return for your share of foreign taxes paid by the
Fund.
Upon the sale or exchange of your Fund shares, you may realize a capital gain or
loss, which will be long term or short term, generally depending upon how long
you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all distributions payable to you if you fail to provide the Fund with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
FINANCIAL HIGHLIGHTS
The Fund commenced operations on April 17, 2000, therefore, no financial
information is presented.
<PAGE> 43
11
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
<PAGE> 44
12
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
<PAGE> 45
Account
Application
FUND USE ONLY
___________________
Account Number
___________________
Dealer/Branch/Rep
___________________
Account Type/Soc Cd
[IVY FUNDS LOGO]
Please mail this application along with your
check to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, Florida 33431-0922
This application should not be used for retirement accounts for which Ivy
Fund (IBT) is custodian.
1 REGISTRATION
Name ____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Address _________________________________________________________________
City _______________________________________ State ________ Zip _________
Phone # (day) (__) ______________ Phone # (evening) (__) ________________
___ Individual ___ UGMA/UTMA ___ Sole proprietor
___ Joint tenant ___ Corporation ___ Trust
___ Estate ___ Partnership ___ Other ____________
Date of trust ______________ Minor's state of residence _______________
2 TAX I.D.
Citizenship: ___ U.S. ___ Other (please specify): _______________
Social security # ____-____-________ or Tax identification ____-_________
Under penalties of perjury, I certify by signing in Section 8 that: (1)
the number shown in this section is my correct taxpayer identification
number (TIN), and (2) I am not subject to backup withholding because: (a)
I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all
interest or dividends, or (b) the IRS has notified me that I am no longer
subject to backup withholding. (Cross out item (2) if you have been
notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.)
3 DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer name _____________________________________________________________
Branch office address ___________________________________________________
City _______________________________________ State ________ Zip _________
Representative's name ___________________________________________________
Representative's # ________________ Representative's phone # ___________
Authorized signature of dealer __________________________________________
4 INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $ _______ made payable to
Ivy Next Wave Internet Fund. Please invest it in:
____ Class A ____ Class B ____ Class C ____ Class I shares.
B. I qualify for a reduction or elimination of the sales charge due to
the following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate privilege is
applicable, provide account(s) information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with the account(s) listed below.
Fund name: _______________________ Fund name: _______________________
Account #: _______________________ Account #: _______________________
If establishing a Letter of Intent, you will need to purchase Class A
shares over a 13-month period in accordance with the provisions in the
Prospectus. The aggregate amount of these purchases will be at least
equal to the amount indicated below (see Prospectus for minimum amount
required for reduced sales charges).
___ $50,000 ___ $100,000 ___ $250,000 ___ $500,000
C. FOR DEALER USE ONLY
Confirmed trade orders: ______________ ________________ __________
Confirm Number Number of Shares Trade Date
<PAGE> 46
DETACH ON PERFORATION TO MAIL
5 DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
A. ___ Reinvest all dividends and capital gains into additional shares
of the same class of a different Ivy fund account.
Fund name: ________________________________________________________
Account #: ________________________________________________________
B. ___ Pay all dividends in cash and reinvest capital gains into
additional shares of the same class in this account or a
different Ivy fund account.
Fund name: ________________________________________________________
Account #: ________________________________________________________
C. ___ Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT
TO: ___ the address listed in the registration
___ the special payee listed in Section 7A (by mail)
___ the special payee listed in Section 7B (by EFT)
6 OPTIONAL SPECIAL FEATURES
A. AUTOMATIC INVESTMENT METHOD (AIM)
___ I wish to have my bank account listed in section 7B automatically
debited via EFT on a predetermined frequency and invested into my
Ivy Next Wave Internet Fund account listed below.
1. Withdraw $ ______ for each time period indicated below and invest my
bank proceeds into the following Ivy Next Wave Internet Fund account:
Share class: ___ Class A ___ Class B ___ Class C
Account #: __________________________________________________________
2. Debit my bank account:
___ Annually (on the ___ day of the month of ______________________).
___ Semiannually (on the ___ day of the months of ___________________
and ___________________).
___ Quarterly (on the ___ day of the first/second/third
month of each calendar quarter). (CIRCLE ONE)
___ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)**
___ I wish to have my Ivy Next Wave Internet Fund account automatically
debited on a predetermined frequency and the proceeds sent to me per
my instructions below.
1. Withdraw ($50 minimum) $ ___ for each time period indicated
below from the following Ivy Next Wave Internet Fund account:
Share class: ___ Class A ___ Class B ___ Class C
Account #: __________________________________________________________
2. Withdraw from my Ivy Next Wave Internet Fund account:
___ Annually (on the ___ day of the month of ______________________).
___ Semiannually (on the ___ day of the months of ___________________
and ___________________).
___ Quarterly (on the ___ day of the first/second/third
month of each calendar quarter). (CIRCLE ONE)
___ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration
___ sent to the special payee listed in section 7A or 7B.
___ invested into additional shares of the same class of a
different Ivy fund:
Fund name: __________________________________________________________
Account #: __________________________________________________________
Note: A minimum balance of $5,000 is required to establish a SWP.
6. OPTIONAL SPECIAL FEATURES (CONT.)
C. FEDERAL FUNDS WIRE
FOR REDEMPTION PROCEEDS** ___ yes ___ no
By checking "yes" immediately above, I authorize IMSC to honor telephone
instructions for the redemption of Fund shares up to $50,000. Proceeds may
be wire transferred to the bank account designated ($1,000 minimum).
(COMPLETE SECTION 7B).
D. TELEPHONE EXCHANGES** ___ yes ___ no
By checking "yes" immediately above, I authorize exchanges by telephone
among the Ivy funds upon instructions from any person as more fully
described in the Prospectus. To change this option once established,
written instructions must be received from the shareholder of record or
the current registered representative.
If neither box is checked, the telephone exchange privilege will be
provided automatically.
E. TELEPHONIC REDEMPTIONS** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized
to honor telephone instructions from any person as more fully described in
the Prospectus for the redemption of Fund shares. The amount of the
redemption shall not exceed $50,000 and the proceeds are to be payable to
the shareholder of record and mailed to the address of record. To change
this option once established, written instructions must be received from
the shareholder of record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be
provided automatically.
* There must be a period of at least seven calendar days between each
investment (AIM)/withdrawal (SWP) period.
** This option may not be used if shares are issued in certificate form.
7 SPECIAL PAYEE
A. MAILING ADDRESS: Please send all disbursements to this payee:
Name of bank or individual _______________________________________________
Account # (if applicable) ________________________________________________
Street ___________________________________________________________________
City _______________________________________ State ________ Zip __________
B. FED WIRE/EFT INFORMATION
Financial institution ____________________________________________________
ABA # ____________________________________________________________________
Account # ________________________________________________________________
Street ___________________________________________________________________
City _______________________________________ State ________ Zip __________
(PLEASE ATTACH A VOIDED CHECK.)
8 SIGNATURES
Investors should be aware that the failure to check "No" under Section
6D or 6E above means that the Telephone Exchange/ Redemption Privileges
will be provided. The Fund employs reasonable procedures that require
personal identification prior to acting on exchange/redemption
instructions communicated by telephone to confirm that such instructions
are genuine. In the absence of such procedures, the Fund may be liable for
any losses due to unauthorized or fraudulent telephone instructions.
Please see "How to exchange shares" and "How to redeem shares" in the
Prospectus for more information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the
Fund for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its terms
are incorporated in this application by reference. I am certifying my
taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
________________________________________________________ _______________
Signature of Owner, Custodian, Trustee or Date
Corporate Officer
________________________________________________________ _______________
Signature of Joint Owner, Co-Trustee or Date
Corporate Officer
(Remember to sign Section 8)
<PAGE> 47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-- QUOTRON SYMBOLS AND CUSIP NUMBERS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
CLASS SYMBOL CUSIP
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Ivy Next Wave Internet Fund Class A * 465898757
Ivy Next Wave Internet Fund Class B * 465898740
Ivy Next Wave Internet Fund Class C * 465898732
Ivy Next Wave Internet Fund Class I * 465898724
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 48
(Ivy Funds Logo)
-- HOW TO RECEIVE MORE
INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained
in the Fund's Statement of Additional Information dated April 17, 2000
(the "SAI"), which is incorporated by reference into this Prospectus,
and is available upon request and without charge from the Distributor
at the following address and phone number.
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Ste. 300
Boca Raton, FL 33432
800.456.5111
Information about the Fund (including the SAI) may also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. (please
call 1-202-942-8090 for further details). Information about the Fund is
also available on the EDGAR Database on the SEC's Internet Website
(www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by electronic request at the following e-mail
address: [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-1028
01INWADV0400
-- SHAREHOLDER
INQUIRIES
Please call
Ivy Mackenzie
Services Corp.,
the Fund's transfer agent,
regarding any other
inquiries about the Fund
at 1.800.777.6472,
e-mail us at
[email protected]
or visit our web site at
www.ivymackenzie.com.
<PAGE> 49
[Ivy Funds Logo]
This is your prospectus from
IVY MACKENZIE
DISTRIBUTORS, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
800.456.5111
April 17, 2000 IVY NEXT WAVE INTERNET FUND ADVISOR CLASS SHARES
Ivy Fund is a registered open-end investment company consisting
of twenty-one separate portfolios. This Prospectus relates to the
Advisor Class shares of Ivy Next Wave Internet Fund (the "Fund").
The Fund also offers Class A, Class B, Class C and Class I
shares, which are described in a separate prospectus.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy or
accuracy of this Prospectus. Any representation to the contrary
is a criminal offense.
Investments in the Fund are not deposits of any bank and are not
federally insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
-- CONTENTS
2 Summary
4 Additional information
about principal investment
strategies and risks
5 Management
5 Shareholder information
9 Account application
12 How to receive more
information about
the Fund
12 Shareholder inquiries
<TABLE>
<S> <C> <C>
OFFICERS
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, Massachusetts
CUSTODIAN AUDITORS
Brown Brothers Harriman & Co. PricewaterhouseCoopers LLP
Boston, Massachusetts Fort Lauderdale, Florida
TRANSFER AGENT INVESTMENT MANAGER
Ivy Mackenzie Services Corp. Ivy Management, Inc.
PO Box 3022 700 South Federal Highway
Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432
800.777.6472 800.456.5111
</TABLE>
(Ivy Mackenzie Logo)
<PAGE> 50
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEXT WAVE INTERNET FUND ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
(GLOBE ARTWORK)
2
IVY NEXT WAVE
INTERNET FUND
- -- INVESTMENT OBJECTIVE
The Fund seeks long-term capital growth. Any income realized will be incidental.
- -- PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its assets in the equity securities (including
common stock, preferred stock and securities convertible into common stock) of
companies of any size that have at least 50% of their assets dedicated to or
derive 50% of their gross sales revenues or profits from the design,
development and/or marketing of Internet related services or products.
The Fund may purchase securities through initial public offerings.
The Internet is a global computer network connecting millions of users worldwide
through the use of a standard common addressing system and communications
protocol. The Fund's management team believes that the Internet is a fertile
growth area, and actively seeks to position the Fund to benefit from this growth
by investing in companies engaged in Internet-related business activities that
may deliver rapid earnings growth and potentially high investment returns.
- -- PRINCIPAL RISKS
The main risks to which the Fund is exposed in carrying out its investment
strategies are the following:
MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the
securities held by other mutual funds with investment objectives that are
similar to those of the Fund.
MARKET RISK: Equity securities typically represent a proportionate ownership
interest in a company. The market value of equity securities can fluctuate
significantly even where "management risk" is not a factor. You could lose money
if you redeem your Fund shares at a time when the Fund's portfolio is not
performing as well as expected.
SMALL- AND MEDIUM-SIZED COMPANY RISK: Many of the companies in which the Fund
may invest have relatively small market capitalizations. Securities of smaller
companies may be subject to more abrupt or erratic market movements than the
securities of larger, more established companies, since smaller companies tend
to be thinly traded and because they are subject to greater business risk.
Transaction costs in smaller-company stocks may also be higher than those of
larger companies.
IPO RISK: 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. The 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 also
limited, so it is likely that IPO securities will represent a smaller component
of the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
INDUSTRY-CONCENTRATION RISK: Since the Fund focuses its investment in securities
of companies engaged in Internet-related business activities, the Fund could
experience wider fluctuations in value than funds with more diversified
portfolios.
<PAGE> 51
3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-- WHO SHOULD INVEST*
The Fund may be appropriate for investors seeking long-term growth
potential, but who can accept significant fluctuations in capital value in
the short-term.
*You should consult with your financial advisor before deciding whether the
Fund is an appropriate investment choice in light of your particular
financial needs and risk tolerance.
-- PERFORMANCE INFORMATION
The Fund commenced operations on April 17, 2000, and so no performance
information is available.
-- FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Fund:
<TABLE>
<CAPTION>
fees paid directly from
SHAREHOLDER FEES your investment
--------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed
on purchases (as a percentage of
offering price)...................... none
Maximum deferred sales charge (load)
(as a percentage of purchase
price)............................... none
Maximum sales charge (load) imposed
on reinvested dividends.............. none
Redemption fee*...................... none
Exchange fee......................... none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND expenses that are
OPERATING EXPENSES deducted from Fund assets
- ------------------------------------------------------------------
<S> <C>
Management fees........................ 1.00%
Distribution and/or service (12b-1)
fees................................... 0.00%
Other expenses**....................... 0.95%
Total annual Fund operating
expenses**............................. 1.95%
</TABLE>
*If you choose to receive your redemption proceeds via Federal
Funds wire, a $10 wire fee will be charged to your account.
**The Fund's Investment Manager has contractually agreed to
reimburse the Fund's expenses for the current fiscal year ending
December 31, 2000, to the extent necessary to ensure that the
Fund's Annual Fund Operating Expenses, when calculated at the Fund
level, do not exceed 1.95% of the Fund's average net assets
(excluding 12b-1 fees and certain other expenses). For each of the
following nine years, the Investment Manager will ensure that
these expenses do not exceed 2.50% of the Fund's average net
assets.
- --------------------------------------------------------------------------------
-- EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be as
follows:
<TABLE>
<CAPTION>
YEAR
------------
<S> <C>
1st $198
3rd 612
</TABLE>
<PAGE> 52
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEW WAVE INTERNET FUND ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
4
ADDITIONAL INFORMATION
ABOUT PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
- -- PRINCIPAL STRATEGIES
The Fund seeks to achieve its principal objective of long-term capital growth by
investing primarily in the equity securities of companies of any size engaged in
the design, development and/or marketing of Internet related services or
products. The Fund may also invest in companies that are expected to benefit
indirectly from the Internet and related business applications.
The Internet is a global computer network connecting millions of users worldwide
through the use of a standard common addressing system and communications
protocol. People and businesses throughout the world use the Internet to
retrieve and exchange information, conduct business, and access a vast array of
services, products and other resources. Rapid advances in the Internet business
environment in recent years have stimulated unprecedented growth. While this is
no guarantee of future performance, the Fund's management team believes that
this industry offers substantial opportunities for long-term capital
appreciation.
The Fund may from time to time take a temporary defensive position and invest
without limit in U.S. Government securities, investment-grade debt securities,
(which are those rated Baa or above by Moody's or BBB or above by S&P) and cash
and cash equivalents such as commercial paper, short-term notes and other money
market securities. When the Fund assumes such a defensive position it may not
achieve its investment objective. Investing in debt securities also involves
both interest rate and credit risk.
- -- PRINCIPAL RISKS
GENERAL MARKET RISK:
As with any mutual fund, the value of the Fund's investments and the income
they generate will vary daily and generally reflect market conditions, interest
rates and other issuer-specific, political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent redemption
or exchange.
OTHER RISKS: The following identifies the investment techniques that the Fund's
advisor considers important in achieving the Fund's investment objective or in
managing its exposure to risk (and that could therefore have a significant
effect on the Fund's returns). The risks of certain investment practices that
are not principal strategies of the Fund (such as borrowing) are also described
below. Other investment techniques that the Fund may use, but that are not
likely to play a key role in their overall investment strategies, are described
in the Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
RISK CHARACTERISTICS:
- - EQUITY SECURITIES: The Fund invests primarily in equity securities, including
common stocks, preferred stocks and securities convertible into common stocks.
Equity securities typically represent a proportionate ownership interest in a
company. As a result, the value of equity securities rises and falls with a
company's success or failure. The market value of these securities 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. Investors in the Fund should note that
these risks are heightened in the case of securities issued through IPOs.
- - INVESTMENT CONCENTRATION: Since the Fund focuses its investment in securities
of companies engaged in Internet-related business activities, the Fund could
experience wider fluctuations in value than funds with more diversified
portfolios.
<PAGE> 53
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
- -- OTHER IMPORTANT INFORMATION
- - BORROWING: For temporary or emergency purposes (such as meeting shareholder
redemption requests within the time periods specified under the Investment
Company Act of 1940), the Fund may borrow up to 10% of the value of its total
assets from qualified banks. Borrowing may exaggerate the effect on the Fund's
share value of any increase or decrease in the value of the securities it
holds. Money borrowed will also be subject to interest costs.
MANAGEMENT
- -- INVESTMENT ADVISOR
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
Ivy Management, Inc. ("IMI", or the "Advisor"), located at Via Mizner Financial
Plaza, 700 South Federal Highway, Boca Raton, Florida 33432, provides investment
advisory and business management services to the Fund. IMI is an SEC-registered
investment adviser with over $7.2 billion in assets under management, and
provides similar services to the other twenty series of the Trust and the five
series of Mackenzie Solutions. For its services, IMI receives a fee that is
equal, on an annual basis, to 1.00% of the Fund's average net assets.
- -- PORTFOLIO MANAGEMENT
A team of professional portfolio managers employed by IMI makes investment
decisions for the Fund.
SHAREHOLDER INFORMATION
- -- PRICING OF FUND SHARES
The Fund calculates its share price by dividing the value of the Fund's net
assets by the total number of its shares outstanding as of the close of regular
trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading (normally any weekday
that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock exchange
is valued at the security's last quoted sale price on the exchange on which it
is principally traded.
If no sale is reported at that time, the average between the last bid and asked
prices is used. Securities and other Fund assets for which market prices are not
readily available are priced at their "fair value" as determined by the Advisor
in accordance with procedures approved by the Fund's Board of Trustees. The
Advisor may also price a foreign security at its "fair value" if events
materially affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the time as of
which the Fund prices its shares. Fair-value pricing under these circumstances
is designed to protect existing shareholders from the actions of short-term
investors trading into and out of the Fund in an attempt to profit from
short-term market movements. When such fair value pricing occurs, there may be
some period of time during which the Fund's share price and/or performance
information is not available.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent)
or by your registered securities dealer. Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on weekends or
other days when the Fund does not price its shares, the Fund's share value may
change on days when shareholders will not be able to purchase or redeem the
Fund's shares.
- -- HOW TO BUY SHARES
Please read these sections below carefully before investing.
Advisor Class shares are offered through this prospectus only to the following
investors:
- - Trustees or other fiduciaries purchasing shares for employee benefit plans
that are sponsored by organizations that have at least 1,000 employees;
<PAGE> 54
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEW WAVE INTERNET FUND ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
6
- - Any account with assets of at least $10,000 if (a) a financial planner, trust
company, bank trust department or registered investment adviser has investment
direction, and where the investor pays such person as compensation for his
advice and other services an annual fee of at least 0.50% on the assets in the
account, or (b) such account is established under a "wrap fee" program and the
account holder pays the sponsor of he program an annual fee of at least 0.50%
on the assets in the account;
- - Officers and Trustees of Ivy Fund and Mackenzie Solutions (and their
relatives);
- - Directors or employees of Mackenzie Investment Management Inc. or its
affiliates;
- - Directors, officers, partners, registered representatives, employees and
retired employees (and their relatives) of dealers having a sales agreement
with IMDI (or trustees or custodians of any qualified retirement plan or IRA
established for the benefit of any such person).
The following investment minimums, sales charges and expenses apply.
<TABLE>
<S> <C>
- --------------------------------------------------------
Minimum initial investment*.................... $10,000
Minimum subsequent investment*................. $250
Initial sales charge........................... None
CDSC........................................... None
Service and distribution fees.................. None
</TABLE>
*Minimum initial and subsequent investments for retirement plans are $25.
- -- SUBMITTING YOUR PURCHASE ORDER
INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the
end of this Prospectus. Enclose a check payable to Ivy Next Wave Internet Fund.
Deliver your application materials to your registered representative or selling
broker, or send them to one of the addresses below:
- - BY REGULAR MAIL:
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
- - BY COURIER:
Ivy Mackenzie Services Corp.
700 South Federal Hwy., Ste. 300
Boca Raton, FL 33432-6114
- -- BUYING ADDITIONAL SHARES
There are several ways to increase your investment in the Fund:
- - BY MAIL: Send your check with a completed investment slip (attached to your
account statement) or written instructions indicating the account
registration, Fund number or name, and account number. Mail to one of the
addresses above.
- - THROUGH YOUR BROKER: Deliver to your registered representative or selling
broker the investment slip attached to your statement, or written
instructions, along with your payment.
- - BY WIRE: Purchases may also be made by wiring money from your bank account to
your Ivy account. Your bank may charge a fee for wiring funds. Before wiring
any funds, please call IMSC at 800.777.6472. Wiring instructions are as
follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Account Registration
Your Fund Number and Account Number
- - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically
drawn each month from your bank account and invested as a purchase of shares
into your Ivy International Fund account. Complete sections 6A and 7B of the
Account Application.
- -- HOW TO REDEEM SHARES
SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your
registered securities dealer or directly through IMSC. If you choose to redeem
through your registered securities dealer, the dealer is responsible for
properly transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your request:
- - BY MAIL: Send your written redemption request to IMSC at one of the addresses
on the left. Be sure that all registered owners listed on the account sign the
request. Medallion signature guarantees and supporting legal documentation may
be required. When you redeem, IMSC will normally send redemption proceeds to
you on the next business day, but may take up to seven
<PAGE> 55
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
days (or longer in the case of shares recently purchased by check).
- - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint
or custodial account. To process your redemption order by telephone, you must
have telephone redemption privileges on your account. IMSC employs reasonable
procedures that require personal identification prior to acting on redemption
instructions communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may be liable for
any losses due to unauthorized or fraudulent telephone instructions. Requests
by telephone can only be accepted for amounts up to $50,000.
- - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds
electronically drawn each month from your Ivy Next Wave Internet Fund account
and deposited directly into your bank account. Certain minimum balances and
minimum distributions apply. Complete section 6B of the Account Application to
add this feature to your account.
RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through
a variety of payment methods:
- - BY CHECK: Unless otherwise instructed in writing, checks will be made payable
to the current account registration and sent to the address of record.
- - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a
pre-designated bank account. Your account will be charged $10 each time
redemption proceeds are wired to your bank, and your bank may also charge you
a fee for receiving a Federal Funds wire.
- - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only.
IMPORTANT REDEMPTION INFORMATION:
- - If you own shares of more than one class of the Fund, the Fund will redeem
first the shares having the highest 12b-1 fees, unless you instruct otherwise.
- - The Fund may (on 60 days' notice) redeem the accounts of shareholders whose
investment, including sales charges paid, has been less than $1,000 for more
than 12 months.
- - A Fund may take up to seven days (or longer in the case of shares recently
purchased by check) to send redemption proceeds.
- -- HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of another Ivy fund, subject to
certain restrictions (see "Important exchange information").
SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as
follows:
- - BY MAIL: Send your written exchange request to IMSC at one of the addresses on
page 6 of this Prospectus. Be sure that all registered owners listed on the
account sign the request.
- - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction.
To process your exchange order by telephone, you must have telephone exchange
privileges on your account. IMSC employs reasonable procedures that require
personal identification prior to acting on exchange instructions communicated
by telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund or IMSC may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
- - You must exchange into the same share class you currently own.
- -- Exchanges are considered
taxable events and may
result in a capital gain or a
capital loss for tax purposes.
- - It is the policy of the Fund to discourage the use of the exchange privilege
for the purpose of timing short-term market fluctuations. The Fund may
therefore limit the frequency of exchanges by a shareholder, charge a
redemption fee (in the case of certain funds), or cancel a shareholder's
exchange privilege if at any time it appears that such market-timing
strategies are being used. For example, shareholders exchanging more than five
times in a 12-month period may be considered to be using market-timing
strategies.
<PAGE> 56
[IVY LEAF LOGO]
- --------------------------------------------------------------------------------
IVY NEW WAVE INTERNET FUND ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
8
- -- DIVIDENDS, DISTRIBUTIONS AND TAXES
- - The Fund generally declares and pays dividends and capital gain distributions
(if any) at least once a year.
- - Dividends and distributions are "reinvested" in additional Fund shares unless
you request to receive them in cash.
- - Cash dividends and distributions can be sent to you:
- BY MAIL: a check will be mailed to the address of record unless otherwise
instructed.
- BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into
your bank account.
To change your dividend and/or distribution options, call IMSC at 800.777.6472.
Dividends ordinarily will vary from one class of shares to another. The Fund
intends to declare and pay dividends annually. The Fund will distribute net
investment income and net realized capital gains, if any, at least once a year.
The Fund may make an additional distribution of net investment income and net
realized capital gains to comply with the calendar year distribution requirement
under the excise tax provisions of Section 4982 of the Internal Revenue Code of
1986, as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to you as
ordinary income. If a portion of the Fund's income consists of dividends paid by
U.S. corporations, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains, regardless of
how long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares. While
the Fund's managers may at times pursue strategies that result in tax efficient
outcomes for the Fund shareholders, they do not generally manage the Fund to
optimize tax efficiencies.
If shares of the Fund are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid by the Fund during January of the
following calendar year. In certain years, you may be able to claim a credit or
deduction on your income tax return for your share of foreign taxes paid by the
Fund.
Upon the sale or exchange of your Fund shares, you may realize a capital gain or
loss, which will be long term or short term, generally depending upon how long
you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all distributions payable to you if you fail to provide the Fund with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
FINANCIAL HIGHLIGHTS
The Fund commenced operations on April 17, 2000, therefore, no financial
information is presented.
<PAGE> 57
Account
Application
FUND USE ONLY
___________________
Account Number
___________________
Dealer/Branch/Rep
___________________
Account Type/Soc Cd
[IVY FUNDS LOGO]
Please mail this application along with your
check to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, Florida 33431-0922
This application should not be used for retirement accounts for which Ivy
Fund (IBT) is custodian.
1 REGISTRATION
Name ____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Address _________________________________________________________________
City _______________________________________ State ________ Zip _________
Phone # (day) (__) ______________ Phone # (evening) (__) ________________
___ Individual ___ UGMA/UTMA ___ Sole proprietor
___ Joint tenant ___ Corporation ___ Trust
___ Estate ___ Partnership ___ Other ____________
Date of trust ______________ Minor's state of residence _______________
2 TAX I.D.
Citizenship: ___ U.S. ___ Other (please specify): _______________
Social security # ____-____-________ or Tax identification ____-_________
Under penalties of perjury, I certify by signing in Section 8 that: (1)
the number shown in this section is my correct taxpayer identification
number (TIN), and (2) I am not subject to backup withholding because: (a)
I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all
interest or dividends, or (b) the IRS has notified me that I am no longer
subject to backup withholding. (Cross out item (2) if you have been
notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.)
3 DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer name _____________________________________________________________
Branch office address ___________________________________________________
City _______________________________________ State ________ Zip _________
Representative's name ___________________________________________________
Representative's # ________________ Representative's phone # ___________
Authorized signature of dealer __________________________________________
4 INVESTMENTS
A. Enclosed is my check ($10,000 minimum) for $ _______ made payable to
Ivy Next Wave Investment Fund. Please invest it in: ____ Advisor class
shares
B. FOR DEALER USE ONLY
Confirmed trade orders: ______________ ________________ __________
Confirm Number Number of Shares Trade Date
<PAGE> 58
DETACH ON PERFORATION TO MAIL
5 DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
A. ___ Reinvest all dividends and capital gains into additional shares
of the same class of a different Ivy fund account.
Fund name: ________________________________________________________
Account #: ________________________________________________________
B. ___ Pay all dividends in cash and reinvest capital gains into
additional shares of the same class in this account or a
different Ivy fund account.
Fund name: ________________________________________________________
Account #: ________________________________________________________
C. ___ Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT
TO: ___ the address listed in the registration
___ the special payee listed in Section 7A (by mail)
___ the special payee listed in Section 7B (by EFT)
6 OPTIONAL SPECIAL FEATURES
A. AUTOMATIC INVESTMENT METHOD (AIM)
___ I wish to have my bank account listed in section 7B automatically
debited via EFT on a predetermined frequency and invested into my
Ivy Next Wave Internet Fund account listed below.
1. Withdraw $ ______ for each time period indicated below and invest my
bank proceeds in Advisor class shares of Ivy Next Wave Internet Fund:
Account #: __________________________________________________________
2. Debit my bank account:
___ Annually (on the ___ day of the month of ______________________).
___ Semiannually (on the ___ day of the months of ___________________
and ___________________).
___ Quarterly (on the ___ day of the first/second/third
month of each calendar quarter). (CIRCLE ONE)
___ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)**
___ I wish to have my Ivy Next Wave Internet Fund account automatically
debited on a predetermined frequency and the proceeds sent to me per
my instructions below.
1. Withdraw ($250 minimum) $ ___ for each time period indicated
below from the Ivy Next Wave Internet Fund account:
Account #: __________________________________________________________
2. Withdraw from my Ivy Next Wave Internet Fund account:
___ Annually (on the ___ day of the month of ______________________).
___ Semiannually (on the ___ day of the months of ___________________
and ___________________).
___ Quarterly (on the ___ day of the first/second/third
month of each calendar quarter). (CIRCLE ONE)
___ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration
___ sent to the special payee listed in section 7A or 7B.
___ invested into additional Advisor class shares of a
different Ivy fund:
Fund name: __________________________________________________________
Account #: __________________________________________________________
Note: A minimum balance of $10,000 is required to establish a SWP.
6. OPTIONAL SPECIAL FEATURES (CONT.)
C. FEDERAL FUNDS WIRE
FOR REDEMPTION PROCEEDS** ___ yes ___ no
By checking "yes" immediately above, I authorize IMSC to honor telephone
instructions for the redemption of Fund shares up to $50,000. Proceeds may
be wire transferred to the bank account designated ($1,000 minimum).
(COMPLETE SECTION 7B).
D. TELEPHONE EXCHANGES** ___ yes ___ no
By checking "yes" immediately above, I authorize exchanges by telephone
among the Ivy funds upon instructions from any person as more fully
described in the Prospectus. To change this option once established,
written instructions must be received from the shareholder of record or
the current registered representative.
If neither box is checked, the telephone exchange privilege will be
provided automatically.
E. TELEPHONIC REDEMPTIONS** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized
to honor telephone instructions from any person as more fully described in
the Prospectus for the redemption of Fund shares. The amount of the
redemption shall not exceed $50,000 and the proceeds are to be payable to
the shareholder of record and mailed to the address of record. To change
this option once established, written instructions must be received from
the shareholder of record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be
provided automatically.
* There must be a period of at least seven calendar days between each
investment (AIM)/withdrawal (SWP) period.
** This option may not be used if shares are issued in certificate form.
7 SPECIAL PAYEE
A. MAILING ADDRESS: Please send all disbursements to this payee:
Name of bank or individual _______________________________________________
Account # (if applicable) ________________________________________________
Street ___________________________________________________________________
City _______________________________________ State ________ Zip __________
B. FED WIRE/EFT INFORMATION
Financial institution ____________________________________________________
ABA # ____________________________________________________________________
Account # ________________________________________________________________
Street ___________________________________________________________________
City _______________________________________ State ________ Zip __________
(PLEASE ATTACH A VOIDED CHECK.)
8 SIGNATURES
Investors should be aware that the failure to check "No" under Section
6D or 6E above means that the Telephone Exchange/ Redemption Privileges
will be provided. The Fund employs reasonable procedures that require
personal identification prior to acting on exchange/redemption
instructions communicated by telephone to confirm that such instructions
are genuine. In the absence of such procedures, the Fund may be liable for
any losses due to unauthorized or fraudulent telephone instructions.
Please see "How to exchange shares" and "How to redeem shares" in the
Prospectus for more information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the
Fund for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its terms
are incorporated in this application by reference. I am certifying my
taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
________________________________________________________ _______________
Signature of Owner, Custodian, Trustee or Date
Corporate Officer
________________________________________________________ _______________
Signature of Joint Owner, Co-Trustee or Date
Corporate Officer
(Remember to sign Section 8)
<PAGE> 59
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-- QUOTRON SYMBOLS AND CUSIP NUMBERS
<TABLE>
<CAPTION>
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CLASS SYMBOL CUSIP
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<S> <C> <C>
Ivy Next Wave Internet Fund Advisor Class * 465898716
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<PAGE> 60
(Ivy Funds Logo)
-- HOW TO RECEIVE MORE
INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained
in the Fund's Statement of Additional Information dated April 17, 2000
(the "SAI"), which is incorporated by reference into this Prospectus,
and is available upon request and without charge from the Distributor
at the following address and phone number.
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Ste. 300
Boca Raton, FL 33432
800.456.5111
Information about the Fund (including the SAI) may also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. (please
call 1-202-942-8090 for further details). Information about the Fund is
also available on the EDGAR Database on the SEC's Internet Website
(www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by electronic request at the following e-mail
address: [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-1028
01INWFX0400
-- SHAREHOLDER
INQUIRIES
Please call
Ivy Mackenzie
Services Corp.,
the Fund's transfer agent,
regarding any other
inquiries about the Fund
at 1.800.777.6472,
e-mail us at
[email protected]
or visit our web site at
www.ivymackenzie.com.
<PAGE>
IVY CUNDILL VALUE FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 17, 2000
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of twenty-one fully managed portfolios, each of which
(except for Ivy South Americthe 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 Cundill Value Fund (the "Fund"). The other
twenty 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 17, 2000 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below. The Fund also offers Advisor Class
shares, which are described in a separate prospectus and SAI that may also be
obtained without charge from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION............................................................4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS....................................4
EQUITY SECURITIES.....................................................7
CONVERTIBLE SECURITIES................................................7
SMALL- AND MEDIUM-SIZED COMPANIES.....................................8
DEBT SECURITIES.......................................................8
IN GENERAL...................................................8
INVESTMENT-GRADE DEBT SECURITIES.............................8
U.S.GOVERNMENT SECURITIES....................................9
ZERO COUPON BONDS...........................................10
FIRM COMMITMENT AGREEMENTS AND
"WHEN-ISSUED" SECURITIES....................................10
ILLIQUID SECURITIES..................................................10
FOREIGN SECURITIES...................................................11
DEPOSITORY RECEIPTS..................................................12
EMERGING MARKETS.....................................................12
FOREIGN CURRENCIES...................................................14
FOREIGN CURRENCY EXCHANGE TRANSACTIONS...............................14
INVESTMENT CONCENTRATION.............................................15
OTHER INVESTMENT COMPANIES...........................................15
REPURCHASE AGREEMENTS................................................16
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS....................16
COMMERCIAL PAPER.....................................................16
BORROWING............................................................16
WARRANTS.............................................................17
OPTIONS TRANSACTIONS.................................................17
IN GENERAL..................................................17
WRITING OPTIONS ON INDIVIDUAL SECURITIES....................18
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.................19
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES........19
RISKS OF OPTIONS TRANSACTIONS...............................20
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...................21
IN GENERAL..................................................21
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS......22
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...........23
SECURITIES INDEX FUTURES CONTRACTS..........................24
RISKS OF SECURITIES INDEX FUTURES...........................25
COMBINED TRANSACTIONS.......................................26
PORTFOLIO TURNOVER............................................................26
MANAGEMENT OF THE FUND........................................................26
TRUSTEES AND OFFICERS................................................26
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST.........33
INVESTMENT ADVISORY AND OTHER SERVICES........................................33
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.................33
INVESTMENT MANAGER...................................................33
SUB-ADVISOR..........................................................34
TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT.35
DISTRIBUTION SERVICES................................................35
RULE 18F-3 PLAN.............................................36
RULE 12B-1 DISTRIBUTION PLANS...............................36
CUSTODIAN............................................................39
FUND ACCOUNTING SERVICES.............................................39
TRANSFER AGENT AND DIVIDEND PAYING AGENT.............................39
ADMINISTRATOR........................................................39
AUDITORS......................................................................40
BROKERAGE ALLOCATION..........................................................40
CAPITALIZATION AND VOTING RIGHTS..............................................41
SPECIAL RIGHTS AND PRIVILEGES.................................................42
AUTOMATIC INVESTMENT METHOD..........................................43
EXCHANGE OF SHARES...................................................43
INITIAL SALES CHARGE SHARES.................................43
CONTINGENT DEFERRED SALES CHARGE SHARES..............................44
CLASS A.....................................................44
CLASS B.....................................................44
CLASS C.....................................................45
CLASS I.....................................................45
ALL CLASSES.................................................45
LETTER OF INTENT.....................................................46
RETIREMENT PLANS.....................................................46
INDIVIDUAL RETIREMENT ACCOUNTS..............................47
ROTH IRAs...................................................48
QUALIFIED PLANS.............................................49
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").......................49
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs....................50
SIMPLE PLANS................................................50
REINVESTMENT PRIVILEGE...............................................50
REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION.....................51
SYSTEMATIC WITHDRAWAL PLAN...........................................51
GROUP SYSTEMATIC INVESTMENT PROGRAM..................................52
REDEMPTIONS...................................................................53
CONVERSION OF CLASS B SHARES..................................................54
NET ASSET VALUE...............................................................54
TAXATION......................................................................56
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..............57
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...............58
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...................58
DEBT SECURITIES ACQUIRED AT A DISCOUNT...............................59
DISTRIBUTIONS........................................................59
DISPOSITION OF SHARES................................................60
FOREIGN WITHHOLDING TAXES............................................61
BACKUP WITHHOLDING...................................................61
PERFORMANCE INFORMATION.......................................................62
AVERAGE ANNUAL TOTAL RETURN.................................62
CUMULATIVE TOTAL RETURN.....................................63
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.......63
FINANCIAL STATEMENTS..........................................................64
APPENDIX A....................................................................65
APPENDIX B....................................................................68
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on April 17,
2000.
Descriptions in this SAI 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. For example, IMI may, in its discretion, employ a given practice,
technique for one or more funds but not for all funds advised by it. It is also
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. Investors should also be aware that certain practices,
techniques, or instruments could, regardless of their relative importance in the
Fund's overall investment strategy, 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." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the 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.
The Fund seeks long-term capital growth. Any income realized will be
incidental. The Fund seeks to achieve its principal objective of long-term
capital growth by investing primarily in the equity securities of companies
throughout the world. Under normal conditions, the Fund invests at least 65% of
its assets in equity securities. Although the Fund will not invest more than 25%
of its total assets in any one industry and does not expect to focus its
investments in a single country, it may at any given time have a significant
percentage of its total assets in one or more market sectors and could have a
substantial portion of its total assets invested in a particular country.
The investment approach of Peter Cundill & Associates (Bermuda) Ltd.,
the Fund's sub-advisor ("Cundill" or the "sub-advisor"), is based on a
contrarian "value" philosophy. The sub-advisor looks for securities that it
believes are trading below their estimated intrinsic value. To determine the
intrinsic value of a particular company, the sub-advisor focuses on the balance
sheet of the company rather than the income statement. In addition to reviewing
the assets, the sub-advisor considers the earnings, dividends, prospects and
management capabilities of the company. Essentially, the sub-advisor revalues
the assets and liabilities of the company to reflect the sub-advisor's estimate
of fair value. Securities are purchased where there is a substantial discount of
price to the estimate of the company's intrinsic value. Because the approach is
to look for undervalued securities, the sub-advisor does not forecast economies
or corporate earnings and does not rely on market timing.
The Fund may invest in warrants, and securities issued on a
"when-issued" or firm commitment basis, and may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest up to 10% of its total assets in other investment companies
and up to 15% of its net assets in illiquid securities. The Fund may not invest
more than 5% of its total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 -by Standard &
Poor's Ratings Group ("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 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 THE 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 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
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 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, and except that 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 1940 Act.
EQUITY SECURITIES
Equity securities can be issued by companies to raise cash; all equity
securities shares represent a proportionate ownership interest in a company. As
a result, the value of equity securities rises and falls with a company's
success or failure. The market value of equity securities 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 equity securities. 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
equity securities changes, and, therefore, also tends to follow movements in the
general market for equity securities. When the market price of the underlying
equity securities increases, the price of a convertible security tends to rise
as a reflection of the value of the underlying equity securities, although
typically not as much as the price of the underlying equity securities. While no
securities investments are without risk, investments in convertible securities
generally entail less risk than investments in equity securities 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- AND MEDIUM-SIZED COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by
S&P are judged to be of the best quality (i.e., capacity to pay interest and
repay principal is extremely strong). Bonds rated Aa/AA are considered to be of
high quality (i.e., capacity to pay interest and repay principal is very strong
and differs from the highest rated issues only to a small degree). Bonds rated A
are viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, if so, could be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly.
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.
INVESTMENT CONCENTRATION
Although the Fund will not invest more than 25% of its total assets in
any one industry and does not expect to focus its investments in a single
country, it may at any given time have a significant percentage of its total
assets in one or more market sectors and could have a substantial portion of its
total assets invested in a particular country. If this were to occur, the Fund
could experience a wider fluctuation in value than funds with more diversified
portfolios.
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 or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
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 was 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 obligations in an OTC transaction, the
Fund would need to negotiate directly with the counterparty.
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, it 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.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Securities are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other securities 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.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trustees. Information about the Fund's investment manager and other service
providers appears in the "Investment Advisory and Other Services" section,
below.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
<S> <C> <C>
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).
Keith J. Carlson Chairman Senior Vice President of Mackenzie
700 South Federal Hwy. and Investment Management, Inc. (1996-
Suite 300 Trustee -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).
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).
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
Dianne Lister Trustee President and Chief Executive Officer,
556 University Avenue The Hospital for Sick Children
Toronto, Ontario L4J 2T4 Foundation (1993-present); Chief
Operating Officer, The Hospital for
Sick Children Foundation (1992-1993);
Executive Vice President, The
Hospital for Sick Children
Foundation (1991-1992).
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).
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>
<PAGE>
COMPENSATION TABLE
IVY FUND
PENSION OR
RETIREMENT ESTIMATED TOTAL COMPENSATION
BENEFITS ANNUAL FROM TRUST AND FUND
AGGREGATE ACCRUED AS BENEFITS COMPLEX PAID TO
COMPENSATION PART OF FUND UPON TRUSTEES**
NAME, FROM TRUST* EXPENSES RETIREMENT
POSITION
John S. $21,500 N/A N/A $21,500
Anderegg, Jr.
(Trustee)
James W. $0 N/A N/A $0
Broadfoot
(Trustee and
President)
Paul H. $21,500 N/A N/A $21,500
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
Chairman)
Stanley $21,500 N/A N/A $21,500
Channick
(Trustee)
Roy J. $21,500 N/A N/A $21,500
Glauber
(Trustee)
Dianne $21,500 N/A N/A $21,500
Lister
(Trustee)
Joseph G. $21,500 N/A N/A $21,500
Rosenthal
(Trustee)
Richard N. $21,500 N/A N/A $21,500
Silverman
(Trustee)
J. Brendan $21,500 N/A N/A $21,500
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
* Estimated for the Fund's initial fiscal year ending December 31, 2000.
** Estimated for the Fund's initial fiscal year ending December 31, 2000.
The Fund complex consists of Ivy Fund and Mackenzie Solutions.
As of the date of this SAI, the Officers and Trustees of the Trust as
a group owned no shares of the Fund.
<PAGE>
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the
Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of
Ethics"), which 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, in compliance with Rule 17j-1 under the 1940
Act. The Code of Ethics permits employees of IMI, IMDI and the Trust to engage
in personal securities transactions, including with respect to securities held
by one or more Funds, subject to certain requirements and restrictions. Among
other things, the Code of Ethics, which applies to portfolio managers, traders,
research analysts and others involved in the investment advisory process,
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions in certain securities may not be
made, and requires the submission of duplicate broker confirmations and
quarterly and annual reporting of securities transactions. Exceptions to certain
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate officers or compliance personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI"), Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, provides investment advisory and
business management services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement
was approved by the sole shareholder of the Fund on April 14, 2000. Before that,
the Advisory Agreement was approved at a meeting held on February 3-4, 2000 by
the Fund's Board of Trustees, including a majority of the Trustees who are
neither "interested persons" (as defined in the 1940 Act) of the Fund nor have
any direct or indirect financial interest in the operation of the Fund's
distribution plan (see "Distribution Services") or in any related agreement
(referred to herein as the "Independent Trustees").
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"), Via Mizner Financial Plaza, 700 South Federal Highway, Boca
Raton, Florida 33432, a Delaware corporation with approximately 10% of its
outstanding common stock listed 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. IMI currently acts as manager and investment
adviser to the other series of Ivy Fund and the five series of Mackenzie
Solutions.
The Advisory 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 Internal Revenue Code of 1986, as amended (the
"Code"), relating to regulated investment companies, and subject to policy
decisions adopted by the Trustees. IMI has delegated to Cundill the primary
responsibility for determining which securities the Fund should purchase and
sell (see "Sub-Advisor," below.)
Under the Advisory Agreement, IMI is also 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 needed; (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 Fund 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 Fund to serve in such
capacities; and (7) take such other action with respect to the Fund, upon the
approval of its trustees, as may be required by applicable law, including
without limitation the rules and regulations of the Securities and Exchange
Commission (the "SEC") and of state securities commissions and other regulatory
agencies.
The Fund pays IMI a fee for its services under the Advisory Agreement
at an annual rate of 1.00% of the Fund's average net assets.
Under the Advisory Agreement, the Trust is also responsible for 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.
SUB-ADVISOR
Cundill, an SEC-registered investment advisor located at P.O. Box SN
117, Southhampton, Bermuda SN BX, serves as sub- advisor to the Fund under a
subadvisory agreement with IMI (the "Subadvisory Agreement"). Cundill began
operations in 1984, and as of the end of 1999 (along with its affiliates) had
approximately $1 billion in assets under management. The Subadvisory Agreement
was approved by the sole shareholder of the Fund on April 14, 2000. Before that,
the Subadvisory Agreement was approved at a meeting held on February 3-4, 2000
by the Fund's Board of Trustees, including a majority of the Independent
Trustees. For its services, Cundill receives a fee from the Advisor that is
equal, on an annual basis, to .50% of the Fund's average net assets. The
subadviser's fee will be paid by IMI out of the advisory fees that it receives
from the Fund.
TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT
The initial term of the Advisory Agreement is two years from April 14,
2000. The initial term of the Subadvisory Agreement is two years from April 14,
2000. Each Agreement will continue in effect with respect to the Fund from year
to year, or for more than the initial period, as the case may be, only so long
as such 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 either Agreement (or adoption of any new agreement) is
presented to shareholders, continuance (or adoption) shall occur only if
approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. (See "Capitalization and Voting Rights.")
The Agreements 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
Advisory Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Fund's shares pursuant to an
Amended and Restated Distribution Agreement with the Trust dated 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 continuously, 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 purchase and redemption orders
on its behalf. 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.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class The Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under
the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors and filed with the SEC. At meetings held
on February 3-4, 2000, the Trustees 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 to 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, respectively. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of Fund
shares, answering routine inquiries concerning the Fund and assisting
shareholders in changing options or enrolling in specific plans. Pursuant to
each Plan, service fee payments made out of or charged against the assets
attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fees compensate IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Trustees who are not "interested persons" (as defined in the 1940
Act) of the Fund shall be committed to the discretion of Trust who are not
"interested persons" of the Fund.
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 banks,
investment advisers, financial institutions and other entities 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 or other party if at the end of each year
the amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly. As of the date of this SAI, no payments had been made
under the Plans with respect to the Fund.
The Class B Plan and underwriting agreement 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. 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 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.
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 any Plan is terminated (or not
renewed) with respect to any of the Ivy funds (or class of shares thereof), each
may continue in effect with respect to any other fund (or Class of shares
thereof) as to which 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 Fund's assets. Rules adopted under
the 1940 Act permit the Trust to maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Pursuant
to those rules, the Custodian has entered into subcustodial agreements for the
holding of the Fund's foreign securities. With respect to the Fund, the
Custodian may receive, as partial payment for its services to the Fund, a
portion of the Trust's brokerage business, subject to its ability to provide
best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to the Fund Accounting Services Agreement, MIMI provides
certain accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million. As of the date of this SAI, no payments have been
made under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenazie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. As of the date of this SAI, no payments
have been made by the Fund for transfer agency services. Certain broker-dealers
that maintain shareholder accounts with the Fund through an omnibus account
provide transfer agent and other shareholder-related services that would
otherwise be provided by IMSC if the individual accounts that comprise the
omnibus account were opened by their beneficial owners directly. IMSC pays such
broker-dealers a per account fee for each open account within the omnibus
account, or a fixed rate (e.g., .10%) fee, based on the average daily net asset
value of the omnibus account (or a combination thereof). As of the date of this
SAI, no payments have been made by the Fund with respect to the provision of
these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 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 shares.
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
As of the date of this SAI, no payments have been made by the Fund with respect
to the provision of these services for the Fund.
AUDITORS
PricewaterhouseCoopers LLP, independent certified public accountants,
have been selected as auditors for the Fund. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
the Fund. Other services provided principally relate to filings with the SEC and
the preparation of the Fund's tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or Cundill 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 Cundill attempts to deal directly
with the principal market makers, except in those circumstances where IMI and/or
Cundill believes that a better price and execution are available elsewhere.
IMI and/or Cundill 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 Cundill
in servicing all of its accounts. In addition, not all of these services may be
used by IMI and/or Cundill in connection with the services it provides to the
Fund or the Trust. IMI and/or Cundill may consider sales of shares of other Ivy,
IMI or Cundill managed funds as a factor in the selection of broker-dealers and
may select broker-dealers who provide it with research services. IMI and/or
Cundill will not, however, execute brokerage transactions other than at the best
price and execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI and/or Cundill deems to be a desirable
investment for the Fund. While no minimum has been established, it is expected
that the Fund will not accept securities having an aggregate value of less than
$1 million. The Trust may reject in whole or in part any or all offers to pay
for Fund shares with securities and may discontinue accepting securities as
payment for Fund shares at any time without notice. The Trust will value
accepted securities in the manner and at the same time provided for valuing
portfolio securities of the Fund, and 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 Fund 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 (the "Declaration of
Trust") permits the Trustees to create separate series or portfolios and to
divide any series or portfolio into one or more classes. Pursuant to the
Declaration of Trust, the Trustees may terminate the Fund without shareholder
approval. This might occur, for example, if the Fund does not reach an
economically viable size. The Trustees have authorized twenty-one 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 the Ivy
Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy
Cundill Value Fund, Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund,
Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund,
Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy Next
Wave Internet Fund, Ivy International Small Companies Fund, Ivy International
Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue
Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares for the
Fund, Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund, Ivy International 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 them differently, separate votes by the shareholders of the 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 the Fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general 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 of the Trust, 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 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.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
As of the date of this SAI, there were no Fund shares outstanding other
than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the 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 Declaration of Trust also 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 any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
Prospectus. The Trust offers (and except as noted below) bears the cost of
providing, to investors the following additional 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 Next Wave Internet Fund, Ivy International
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South Americthe Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund
(the other twenty series of the Trust). Shareholders should obtain a current
prospectus before exercising any right or privilege that may relate to these
funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables the Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
To use this privilege, please complete Sections 6A and 7B of the Account
Application that is included with the Prospectus.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.)
Class A shareholders may also exchange their shares for shares of Ivy
Money Market Fund (no initial sales charge will be assessed at the time of such
an exchange).
The 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 the
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 the Fund) 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 the 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 the
Fund exercising the exchange privilege will continue to be subject to the Fund's
CDSC period following an exchange if such period is longer than the CDSC period,
if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to the Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to the Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of the Ivy Cundill
Value Fund, Ivy Next Wave Internet Fund, Ivy Asia Pacific Fund, Ivy Bond Fund,
Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European Opportunities
Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South Americthe
Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE
OF DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following
paragraph, Class I shareholders may exchange their outstanding Class I shares
for Class I shares of another Ivy fund on the basis of the relative net asset
value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000. 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
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 backdated. A shareholder may include, as an accumulation credit,
the value (at the applicable offering price) of all Class A shares of Ivy
Cundill Value Fund, Ivy Next Wave Internet Fund, Ivy Asia Pacific Fund, Ivy Bond
Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South Americthe 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, IMSC 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 the letter before signing.
RETIREMENT PLANS
Shares of the Fund 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 some aspects of 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 the
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 the 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 (and his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includible in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. There are
special rules for determining what portion of any distribution is allocable to
deductible and to non-deductible contributions. In general, distributions from
an IRA to an individual before he or she reaches age 59-1/2 are subject to a
nondeductible penalty tax equal to 10% of the taxable amount of the
distribution. The 10% penalty tax does not apply to amounts withdrawn from an
IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses, amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAs: Shares of the Fund also may be used as the Funding medium
for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA are taxable and subject to a
10% tax penalty unless an exception applies. Exceptions to the 10% penalty
include: disability, deductible medical expenses, certain purchases of health
insurance for an 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
Adoption 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 Adoption 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 Adoption 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 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 Fund 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 any contributions or benefits
are credited to those employees under any other qualified retirement plan
maintained by the employer.
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
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."
REDUCED SALES CHARGES AND 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" are 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 the
Fund 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 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 Fund 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
Fund 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, 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 Fund and IMI
each currently charge a maintenance fee of $3.00 (or portion thereof) for each
twelve-month period (or portion thereof) that the account is maintained. The
Fund 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 Fund 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 Fund 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. The Fund may delay for up to seven days
delivery of the proceeds of a wire redemption request of $250,000 or more if
considered 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 their "fair value" as determined by
IMI in accordance with procedures 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 their 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 is not managed for tax-efficiency.
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 the 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 the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
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 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 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 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 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.
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'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 the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Fund's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities, as of March 14, 2000,
and Report of Independent Accountants are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("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 MARCH 14, 2000
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY CUNDILL VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
ASSETS
Cash.............................................................$ 50
Prepaid offering costs........................................... 12,500
Prepaid blue sky fees............................................ 10,000
Total assets................................................. 22,550
------
LIABILITIES
Due to affiliate................................................. 22,500
------
NET ASSETS............................................................$ 50
======
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
($10.00 / 1 share outstanding)...............................$ 10.00
======
NET ASSETS CONSISTS OF:
Capital paid-in $ 50
======
<PAGE>
* On sales of more than $50,000 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 CUNDILL VALUE FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
1. ORGANIZATION: Ivy Cundill Value 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 or about April 15, 2000. 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 $14,653
comprised of $2,500 for auditing and $12,153 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COSTS AND PREPAID BLUE SKY FEES: Offering costs, consisting of
prospectus printing costs, and blue sky fees, will be amortized over a one year
period beginning on or about April 15, 2000, the date the Fund is expected to
commence operations. Offering costs and blue sky fees of $12,500 and $10,000,
respectively, will be paid by MIMI and will be reimbursed by the Fund. Offering
costs representing legal fees of $48,613 and blue sky fees of $42,940 were
assumed by MIMI and the Fund is not required to reimburse MIMI.
4. TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a wholly owned
subsidiary of MIMI, is the Manager and Investment Adviser of the Fund.
Currently, IMI contractually limits the Fund's total operating expenses
(excluding 12b-1 fees and certain other expenses) to an annual rate of 1.95% of
its average net assets. This reimbursement rate is determined annually.
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 March 14, 2000.
<PAGE>
[PricewaterhouseCoopers letterhead]
Report of Independent Certified Public Accountants
To the Board of Trustees and
Shareholders of Ivy Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Ivy Cundill
Value Fund (the "Fund") at March 14, 2000, in conformity with accounting
principles generally accepted in the United States. This financial statement is
the responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
March 15, 2000
<PAGE>
IVY CUNDILL VALUE FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
ADVISOR CLASS SHARES
April 17, 2000
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of twenty-one 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 Cundill Value Fund (the "Fund"). The other twenty
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 17, 2000 (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 Fund also offers 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
Page
GENERAL INFORMATION..........................................................4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................4
EQUITY SECURITIES...................................................7
CONVERTIBLE SECURITIES..............................................7
SMALL- AND MEDIUM-SIZED COMPANIES...................................8
DEBT SECURITIES.....................................................8
IN GENERAL.................................................8
INVESTMENT-GRADE DEBT SECURITIES...........................8
U.S.GOVERNMENT SECURITIES..................................9
ZERO COUPON BONDS.........................................10
FIRM COMMITMENT AGREEMENTS AND
"WHEN-ISSUED" SECURITIES..................................10
ILLIQUID SECURITIES................................................10
FOREIGN SECURITIES.................................................11
DEPOSITORY RECEIPTS................................................12
EMERGING MARKETS...................................................12
FOREIGN CURRENCIES.................................................14
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................14
INVESTMENT CONCENTRATION...........................................15
OTHER INVESTMENT COMPANIES.........................................15
REPURCHASE AGREEMENTS..............................................16
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................16
COMMERCIAL PAPER...................................................16
BORROWING..........................................................16
WARRANTS...........................................................17
OPTIONS TRANSACTIONS...............................................17
IN GENERAL................................................17
WRITING OPTIONS ON INDIVIDUAL SECURITIES..................18
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............19
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES......19
RISKS OF OPTIONS TRANSACTIONS.............................20
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................21
IN GENERAL................................................21
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS....22
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........23
SECURITIES INDEX FUTURES CONTRACTS........................24
RISKS OF SECURITIES INDEX FUTURES.........................25
COMBINED TRANSACTIONS.....................................26
PORTFOLIO TURNOVER..........................................................26
MANAGEMENT OF THE FUND......................................................26
TRUSTEES AND OFFICERS..............................................26
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST.......33
INVESTMENT ADVISORY AND OTHER SERVICES......................................33
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............33
INVESTMENT MANAGER.................................................33
SUB-ADVISOR........................................................34
TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMEN35
DISTRIBUTION SERVICES..............................................35
RULE 18F-3 PLAN...........................................36
CUSTODIAN..........................................................36
FUND ACCOUNTING SERVICES...........................................36
TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................37
ADMINISTRATOR......................................................37
AUDITORS.37
BROKERAGE ALLOCATION........................................................37
CAPITALIZATION AND VOTING RIGHTS............................................38
SPECIAL RIGHTS AND PRIVILEGES...............................................40
AUTOMATIC INVESTMENT METHOD........................................40
EXCHANGE OF SHARES.................................................40
RETIREMENT PLANS...................................................41
INDIVIDUAL RETIREMENT ACCOUNTS............................41
ROTH IRAs.................................................42
QUALIFIED PLANS...........................................43
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").....................44
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs..................44
SIMPLE PLANS..............................................44
SYSTEMATIC WITHDRAWAL PLAN.........................................45
GROUP SYSTEMATIC INVESTMENT PROGRAM................................45
REDEMPTIONS.................................................................46
NET ASSET VALUE.............................................................46
TAXATION 48
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............49
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............50
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................50
DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................51
DISTRIBUTIONS......................................................52
DISPOSITION OF SHARES..............................................52
FOREIGN WITHHOLDING TAXES..........................................53
BACKUP WITHHOLDING.................................................54
PERFORMANCE INFORMATION.....................................................54
AVERAGE ANNUAL TOTAL RETURN...............................55
CUMULATIVE TOTAL RETURN...................................55
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.....56
FINANCIAL STATEMENTS........................................................56
APPENDIX A..................................................................58
APPENDIX B..................................................................61
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on April 17,
2000.
Descriptions in this SAI 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. For example, IMI may, in its discretion, employ a given practice,
technique for one or more funds but not for all funds advised by it. It is also
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. Investors should also be aware that certain practices,
techniques, or instruments could, regardless of their relative importance in the
Fund's overall investment strategy, 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." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the 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.
The Fund seeks long-term capital growth. Any income realized will be
incidental. The Fund seeks to achieve its principal objective of long-term
capital growth by investing primarily in the equity securities of companies
throughout the world. Under normal conditions, the Fund invests at least 65% of
its assets in equity securities. Although the Fund will not invest more than 25%
of its total assets in any one industry and does not expect to focus its
investments in a single country, it may at any given time have a significant
percentage of its total assets in one or more market sectors and could have a
substantial portion of its total assets invested in a particular country.
The investment approach of Peter Cundill & Associates (Bermuda) Ltd.,
the Fund's sub-advisor ("Cundill" or the "sub-advisor"), is based on a
contrarian "value" philosophy. The sub-advisor looks for securities that it
believes are trading below their estimated intrinsic value. To determine the
intrinsic value of a particular company, the sub-advisor focuses on the balance
sheet of the company rather than the income statement. In addition to reviewing
the assets, the sub-advisor considers the earnings, dividends, prospects and
management capabilities of the company. Essentially, the sub-advisor revalues
the assets and liabilities of the company to reflect the sub-advisor's estimate
of fair value. Securities are purchased where there is a substantial discount of
price to the estimate of the company's intrinsic value. Because the approach is
to look for undervalued securities, the sub-advisor does not forecast economies
or corporate earnings and does not rely on market timing.
The Fund may invest in warrants, and securities issued on a
"when-issued" or firm commitment basis, and may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest up to 10% of its total assets in other investment companies
and up to 15% of its net assets in illiquid securities. The Fund may not invest
more than 5% of its total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 -by Standard &
Poor's Ratings Group ("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 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 THE 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 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
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 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, and except that 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 1940 Act.
EQUITY SECURITIES
Equity securities can be issued by companies to raise cash; all equity
securities shares represent a proportionate ownership interest in a company. As
a result, the value of equity securities rises and falls with a company's
success or failure. The market value of equity securities 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 equity securities. 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
equity securities changes, and, therefore, also tends to follow movements in the
general market for equity securities. When the market price of the underlying
equity securities increases, the price of a convertible security tends to rise
as a reflection of the value of the underlying equity securities, although
typically not as much as the price of the underlying equity securities. While no
securities investments are without risk, investments in convertible securities
generally entail less risk than investments in equity securities 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- AND MEDIUM-SIZED COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by
S&P are judged to be of the best quality (i.e., capacity to pay interest and
repay principal is extremely strong). Bonds rated Aa/AA are considered to be of
high quality (i.e., capacity to pay interest and repay principal is very strong
and differs from the highest rated issues only to a small degree). Bonds rated A
are viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, if so, could be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly.
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.
INVESTMENT CONCENTRATION
Although Ivy Cundill Value Fund will not invest more than 25% of its
total assets in any one industry and does not expect to focus its investments in
a single country, it may at any given time have a significant percentage of its
total assets in one or more market sectors and could have a substantial portion
of its total assets invested in a particular country. If this were to occur, the
Fund could experience a wider fluctuation in value than funds with more
diversified portfolios.
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 or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
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 was 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 obligations in an OTC transaction, the
Fund would need to negotiate directly with the counterparty.
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, it 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.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Securities are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other securities 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.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trustees. Information about the Fund's investment manager and other service
providers appears in the "Investment Advisory and Other Services" section,
below.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
<S> <C> <C>
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).
Keith J. Carlson Chairman Senior Vice President of Mackenzie
700 South Federal Hwy. and Investment Management, Inc. (1996-
Suite 300 Trustee -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).
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).
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
Dianne Lister Trustee President and Chief Executive Officer,
556 University Avenue The Hospital for Sick Children
Toronto, Ontario L4J 2T4 Foundation (1993-present); Chief
Operating Officer, The Hospital for Sick
Children Foundation (1992-1993);
Executive Vice President, The
Hospital for Sick Children
Foundation (1991-1992).
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).
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>
<PAGE>
COMPENSATION TABLE
IVY FUND
PENSION OR
RETIREMENT ESTIMATED TOTAL COMPENSATION
BENEFITS ANNUAL FROM TRUST AND FUND
AGGREGATE ACCRUED AS BENEFITS COMPLEX PAID TO
COMPENSATION PART OF FUND UPON TRUSTEES**
NAME, FROM TRUST* EXPENSES RETIREMENT
POSITION
John S. $21,500 N/A N/A $21,500
Anderegg, Jr.
(Trustee)
James W. $0 N/A N/A $0
Broadfoot
(Trustee and
President)
Paul H. $21,500 N/A N/A $21,500
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
Chairman)
Stanley $21,500 N/A N/A $21,500
Channick
(Trustee)
Roy J. $21,500 N/A N/A $21,500
Glauber
(Trustee)
Dianne $21,500 N/A N/A $21,500
Lister
(Trustee)
Joseph G. $21,500 N/A N/A $21,500
Rosenthal
(Trustee)
Richard N. $21,500 N/A N/A $21,500
Silverman
(Trustee)
J. Brendan $21,500 N/A N/A $21,500
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
* Estimated for the Fund's initial fiscal year ending December 31, 2000.
** Estimated for the Fund's initial fiscal year ending December 31, 2000.
The Fund complex consists of Ivy Fund and Mackenzie Solutions.
As of the date of this SAI, the Officers and Trustees of the Trust as
a group owned no shares of the Fund.
<PAGE>
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the
Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of
Ethics"), which 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, in compliance with Rule 17j-1 under the 1940
Act. The Code of Ethics permits employees of IMI, IMDI and the Trust to engage
in personal securities transactions, including with respect to securities held
by the Fund, subject to certain requirements and restrictions. Among other
things, the Code of Ethics, which applies to portfolio managers, traders,
research analysts and others involved in the investment advisory process,
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions in certain securities may not be
made, and requires the submission of duplicate broker confirmations and
quarterly and annual reporting of securities transactions. Exceptions to certain
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate officers or compliance personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI"), Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, provides investment advisory and
business management services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement
was approved by the sole shareholder of the Fund on April 14, 2000. Before that,
the Advisory Agreement was approved at a meeting held on February 3-4, 2000 by
the Fund's Board of Trustees, including a majority of the Trustees who are
neither "interested persons" (as defined in the 1940 Act) of the Fund nor have
any direct or indirect financial interest in the operation of the Fund's
distribution plan (see "Distribution Services") or in any related agreement
(referred to herein as the "Independent Trustees").
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"), Via Mizner Financial Plaza, 700 South Federal Highway, Boca
Raton, Florida 33432, a Delaware corporation with approximately 10% of its
outstanding common stock listed 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. IMI currently acts as manager and investment
adviser to the other series of Ivy Fund and the five series of Mackenzie
Solutions.
The Advisory 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 Internal Revenue Code of 1986, as amended (the
"Code"), relating to regulated investment companies, and subject to policy
decisions adopted by the Trustees. IMI has delegated to Cundill the primary
responsibility for determining which securities the Fund should purchase and
sell (see "Sub-Advisor," below.)
Under the Advisory Agreement, IMI is also 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 needed; (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 Fund 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 Fund to serve in such
capacities; and (7) take such other action with respect to the Fund, upon the
approval of its trustees, as may be required by applicable law, including
without limitation the rules and regulations of the Securities and Exchange
Commission (the "SEC") and of state securities commissions and other regulatory
agencies.
The Fund pays IMI a fee for its services under the Advisory Agreement
at an annual rate of 1.00% of the Fund's average net assets.
Under the Advisory Agreement, the Trust is also responsible for 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.
SUB-ADVISOR
Cundill, an SEC-registered investment advisor located at P.O. Box SN
117, Southhampton, Bermuda SN BX, serves as sub- advisor to the Fund under a
subadvisory agreement with IMI (the "Subadvisory Agreement"). Cundill began
operations in 1984, and as of the end of 1999 (along with its affiliates) had
approximately $1 billion in assets under management. The Subadvisory Agreement
was approved by the sole shareholder of the Fund on April 14, 2000. Before that,
the Subadvisory Agreement was approved at a meeting held on February 3-4, 2000
by the Fund's Board of Trustees, including a majority of the Independent
Trustees. For its services, Cundill receives a fee from the Advisor that is
equal, on an annual basis, to .50% of the Fund's average net assets. The
subadviser's fee will be paid by IMI out of the advisory fees that it receives
from the Fund.
TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT
The initial term of the Advisory Agreement is two years from April 14,
2000. The initial term of the Subadvisory Agreement is two years from April 14,
2000. Each Agreement will continue in effect with respect to the Fund from year
to year, or for more than the initial period, as the case may be, only so long
as such 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 either Agreement (or adoption of any new agreement) is
presented to shareholders, continuance (or adoption) shall occur only if
approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. (See "Capitalization and Voting Rights.")
The Agreements 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
Advisory Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Fund's shares pursuant to an
Amended and Restated Distribution Agreement with the Trust dated 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 continuously, 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 purchase and redemption orders
on its behalf. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will be
deemed to have received a purchase or redemption order when an authorized
intermediary or, if applicable, an intermediary's authorized designee, accepts
the order. Client orders will be priced at the Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under
the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
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 and filed with the SEC. At meetings held
on February 3-4, 2000, the Trustees adopted a Rule 18f-3 plan on behalf of the
Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each
class of the Fund represent an equal pro rata interest in the Fund and generally
have identical voting, dividend, liquidation, and other rights, preferences,
powers, restrictions, limitations, qualifications, terms and conditions, except
that each class bears certain class-specific expenses and has separate voting
rights on certain matters that relate solely to that class or in which the
interests of shareholders of one class differ from the interests of shareholders
of another class; (ii) subject to certain limitations described in the
Prospectus, shares of a particular class of the Fund may be exchanged for shares
of the same class of another Ivy fund; and (iii) the Fund's Class B shares will
convert automatically into Class A shares of the Fund after a period of eight
years, based on the relative net asset value of such shares at the time of
conversion.
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the Fund's assets. Rules adopted under
the 1940 Act permit the Trust to maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Pursuant
to those rules, the Custodian has entered into subcustodial agreements for the
holding of the Fund's foreign securities. With respect to the Fund, the
Custodian may receive, as partial payment for its services to the Fund, a
portion of the Trust's brokerage business, subject to its ability to provide
best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to the Fund Accounting Services Agreement, MIMI provides
certain accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million. As of the date of this SAI, no payments have been
made under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenazie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. As of the date of this SAI, no payments
have been made by the Fund for transfer agency services. Certain broker-dealers
that maintain shareholder accounts with the Fund through an omnibus account
provide transfer agent and other shareholder-related services that would
otherwise be provided by IMSC if the individual accounts that comprise the
omnibus account were opened by their beneficial owners directly. IMSC pays such
broker-dealers a per account fee for each open account within the omnibus
account, or a fixed rate (e.g., .10%) fee, based on the average daily net asset
value of the omnibus account (or a combination thereof). As of the date of this
SAI, no payments have been made by the Fund with respect to the provision of
these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 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 shares.
AUDITORS
PricewaterhouseCoopers LLP, independent certified public accountants,
have been selected as auditors for the Fund. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
the Fund. Other services provided principally relate to filings with the SEC and
the preparation of the Fund's tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or Cundill 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 Cundill attempts to deal directly
with the principal market makers, except in those circumstances where IMI and/or
Cundill believes that a better price and execution are available elsewhere.
IMI and/or Cundill 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 Cundill
in servicing all of its accounts. In addition, not all of these services may be
used by IMI and/or Cundill in connection with the services it provides to the
Fund or the Trust. IMI and/or Cundill may consider sales of shares of other Ivy,
IMI or Cundill managed funds as a factor in the selection of broker-dealers and
may select broker-dealers who provide it with research services. IMI and/or
Cundill will not, however, execute brokerage transactions other than at the best
price and execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI and/or Cundill deems to be a desirable
investment for the Fund. While no minimum has been established, it is expected
that the Fund will not accept securities having an aggregate value of less than
$1 million. The Trust may reject in whole or in part any or all offers to pay
for Fund shares with securities and may discontinue accepting securities as
payment for Fund shares at any time without notice. The Trust will value
accepted securities in the manner and at the same time provided for valuing
portfolio securities of the Fund, and 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 Fund 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 (the "Declaration of
Trust") permits the Trustees to create separate series or portfolios and to
divide any series or portfolio into one or more classes. Pursuant to the
Declaration of Trust, the Trustees may terminate the Fund without shareholder
approval. This might occur, for example, if the Fund does not reach an
economically viable size. The Trustees have authorized twenty-one 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 the Ivy
Money Market Fund and Class A, Class B, Class C and Advisor Class shares for the
Ivy Cundill Value Fund, Ivy Next Wave Internet Fund, Ivy Asia Pacific Fund, Ivy
Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for the Fund, Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science
& Technology Fund, Ivy International Fund, Ivy International 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 them differently, separate votes by the shareholders of the 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 the Fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general 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 of the Trust, 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 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.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
As of the date of this SAI, there were no Fund shares outstanding other
than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the 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 Declaration of Trust also 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 any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
Prospectus. The Trust offers (and except as noted below) bears the cost of
providing, to investors the following additional rights and privileges. The
Trust reserves the right to amend or terminate any one or more of these rights
and privileges. Notice of amendments to or terminations of rights and privileges
will be provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund, Ivy International Fund II,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy Money Market Fund, Ivy Next Wave Internet Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the
other twenty series of the Trust). Shareholders should obtain a current
prospectus before exercising any right or privilege that may relate to these
funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables the Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
To use this privilege, please complete Sections 6A and 7B of the Account
Application that is included with the Prospectus.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
RETIREMENT PLANS
Shares of the Fund 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 some aspects of 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 a 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 (and his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includible in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. There are
special rules for determining what portion of any distribution is allocable to
deductible and to non-deductible contributions. In general, distributions from
an IRA to an individual before he or she reaches age 59-1/2 are subject to a
nondeductible penalty tax equal to 10% of the taxable amount of the
distribution. The 10% penalty tax does not apply to amounts withdrawn from an
IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses, amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAs: Shares of the 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 are taxable and subject to a
10% tax penalty unless an exception applies. Exceptions to the 10% penalty
include: disability, deductible medical expenses, certain purchases of health
insurance for an 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
Adoption 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 Adoption 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 Adoption 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 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 Fund 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 any contributions or benefits
are credited to those employees under any other qualified retirement plan
maintained by the employer.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan") by telephone instructions 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 $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.
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 Fund 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
Fund 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, 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 Fund and IMI
each currently charge a maintenance fee of $3.00 (or portion thereof) for each
twelve-month period (or portion thereof) that the account is maintained. The
Fund 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 Fund reserves the right to change these fees from time to time without
advance notice.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC. Unless a
shareholder requests that the proceeds of any redemption be wired to his or her
bank account, payment for shares tendered for redemption is made by check within
seven days after tender in proper form, except that the Fund 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 Advisor Class accounts of shareholders who
have maintained an investment, including sales charges paid, of less than
$10,000 in the Fund for a period of more than 12 months. All Advisor Class
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $10,000 balance will be determined by actual dollar amounts
invested by the shareholder, unaffected by market fluctuations. The Trust will
notify any such shareholder by certified mail of its intention to redeem such
account, and the shareholder shall have 60 days from the date of such letter to
invest such additional sums as shall raise the value of such account above that
minimum. Should the shareholder fail to forward such sum within 60 days of the
date of the Trust's letter of notification, the Trust will redeem the shares
held in such account and transmit the redemption in value thereof to the
shareholder. However, those shareholders who are investing pursuant to the
Automatic Investment Method will not be redeemed automatically unless they have
ceased making payments pursuant to the plan for a period of at least six
consecutive months, and these shareholders will be given six-months' notice by
the Trust before such redemption. Shareholders in a qualified retirement,
pension or profit sharing plan who wish to avoid tax consequences must
"rollover" any sum so redeemed into another qualified plan within 60 days. The
Trustees of the Trust may change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. The Fund may delay for up to seven days
delivery of the proceeds of a wire redemption request of $250,000 or more if
considered 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.
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 their "fair value" as determined by
IMI in accordance with procedures 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 their 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 is not managed for tax-efficiency.
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 the 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 the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
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 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 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 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 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.
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'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 the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase
shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Fund's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities, as of March 14, 2000,
and Report of Independent Accountants are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("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 MARCH 14, 2000
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY CUNDILL VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
ASSETS
Cash...............................................................$ 50
Prepaid offering costs............................................. 12,500
Prepaid blue sky fees.............................................. 10,000
Total assets................................................... 22,550
------
LIABILITIES
Due to affiliate................................................... 22,500
------
NET ASSETS..............................................................$ 50
======
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
($10.00 / 1 share outstanding).................................$ 10.00
======
NET ASSETS CONSISTS OF:
Capital paid-in $ 50
======
<PAGE>
* On sales of more than $50,000 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 CUNDILL VALUE FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
1. ORGANIZATION: Ivy Cundill Value 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 or about April 15, 2000. 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 $14,653
comprised of $2,500 for auditing and $12,153 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COSTS AND PREPAID BLUE SKY FEES: Offering costs, consisting of
prospectus printing costs, and blue sky fees, will be amortized over a one year
period beginning on or about April 15, 2000, the date the Fund is expected to
commence operations. Offering costs and blue sky fees of $12,500 and $10,000,
respectively, will be paid by MIMI and will be reimbursed by the Fund. Offering
costs representing legal fees of $48,613 and blue sky fees of $42,940 were
assumed by MIMI and the Fund is not required to reimburse MIMI.
4. TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a wholly owned
subsidiary of MIMI, is the Manager and Investment Adviser of the Fund.
Currently, IMI contractually limits the Fund's total operating expenses
(excluding 12b-1 fees and certain other expenses) to an annual rate of 1.95% of
its average net assets. This reimbursement rate is determined annually.
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 March 14, 2000.
<PAGE>
[PricewaterhouseCoopers letterhead]
Report of Independent Certified Public Accountants
To the Board of Trustees and
Shareholders of Ivy Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Ivy Cundill
Value Fund (the "Fund") at March 14, 2000, in conformity with accounting
principles generally accepted in the United States. This financial statement is
the responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
March 15, 2000
<PAGE>
IVY NEXT WAVE INTERNET FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 17, 2000
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of twenty-one fully managed portfolios, each of which
(except for Ivy South Americthe 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 Next Wave Internet Fund (the "Fund"). The
other twenty 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 17, 2000 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below. The Fund also offers Advisor Class
shares, which are described in a separate prospectus and SAI that may also be
obtained without charge from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION.........................................................4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................................4
EQUITY SECURITIES..................................................7
CONVERTIBLE SECURITIES.............................................7
SMALL- AND MEDIUM-SIZED COMPANIES..................................8
INITIAL PUBLIC OFFERINGS...........................................8
DEBT SECURITIES....................................................9
IN GENERAL................................................9
INVESTMENT-GRADE DEBT SECURITIES..........................9
LOW-RATED DEBT SECURITIES.................................9
U.S.GOVERNMENT SECURITIES................................10
ZERO COUPON BONDS........................................11
FIRM COMMITMENT AGREEMENTS AND
"WHEN-ISSUED" SECURITIES.................................12
ILLIQUID SECURITIES...............................................12
FOREIGN SECURITIES................................................13
DEPOSITORY RECEIPTS...............................................14
EMERGING MARKETS..................................................14
FOREIGN CURRENCIES................................................15
FOREIGN CURRENCY EXCHANGE TRANSACTIONS............................16
INVESTMENT CONCENTRATION..........................................17
OTHER INVESTMENT COMPANIES........................................17
REPURCHASE AGREEMENTS.............................................17
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.................18
COMMERCIAL PAPER..................................................18
BORROWING.........................................................18
WARRANTS..........................................................18
OPTIONS TRANSACTIONS..............................................19
IN GENERAL...............................................19
WRITING OPTIONS ON INDIVIDUAL SECURITIES.................20
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES..............20
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.....21
RISKS OF OPTIONS TRANSACTIONS............................21
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS................23
IN GENERAL...............................................23
FOREIGN CURRENCY FUTURES CONTRACTS
AND RELATED OPTIONS......................................24
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS........25
SECURITIES INDEX FUTURES CONTRACTS.......................26
RISKS OF SECURITIES INDEX FUTURES........................26
COMBINED TRANSACTIONS....................................28
PORTFOLIO TURNOVER.........................................................28
MANAGEMENT OF THE FUND.....................................................28
TRUSTEES AND OFFICERS.............................................28
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..........................35
INVESTMENT ADVISORY AND OTHER SERVICES.....................................35
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..............35
INVESTMENT MANAGER................................................35
TERM AND TERMINATION OF ADVISORY AGREEMENT........................36
DISTRIBUTION SERVICES.............................................37
RULE 18F-3 PLAN..........................................38
RULE 12B-1 DISTRIBUTION PLANS............................38
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................................................45
INITIAL SALES CHARGE SHARES..............................45
CONTINGENT DEFERRED SALES CHARGE SHARES...........................45
CLASS A..................................................45
CLASS B..................................................46
CLASS C..................................................47
CLASS I..................................................47
ALL CLASSES..............................................47
LETTER OF INTENT..................................................48
RETIREMENT PLANS..................................................48
INDIVIDUAL RETIREMENT ACCOUNTS...........................49
ROTH IRAs................................................50
QUALIFIED PLANS..........................................50
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")....................51
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs.................52
SIMPLE PLANS.............................................52
REINVESTMENT PRIVILEGE............................................52
REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION..................52
SYSTEMATIC WITHDRAWAL PLAN........................................53
GROUP SYSTEMATIC INVESTMENT PROGRAM...............................53
REDEMPTIONS................................................................55
CONVERSION OF CLASS B SHARES...............................................56
NET ASSET VALUE............................................................56
TAXATION...................................................................57
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...........58
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES............60
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES................60
DEBT SECURITIES ACQUIRED AT A DISCOUNT............................60
DISTRIBUTIONS.....................................................61
DISPOSITION OF SHARES.............................................62
FOREIGN WITHHOLDING TAXES.........................................62
BACKUP WITHHOLDING................................................63
PERFORMANCE INFORMATION....................................................64
AVERAGE ANNUAL TOTAL RETURN..............................64
CUMULATIVE TOTAL RETURN..................................65
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION....65
FINANCIAL STATEMENTS.......................................................66
APPENDIX A.................................................................67
APPENDIX B.................................................................70
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on April 17,
2000.
Descriptions in this SAI 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. For example, IMI may, in its discretion, employ a given practice,
technique for one or more funds but not for all funds advised by it. It is also
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. Investors should also be aware that certain practices,
techniques, or instruments could, regardless of their relative importance in the
Fund's overall investment strategy, 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." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the 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.
The Fund's principal objective is long-term capital growth. Any
income realized will be incidental. Under normal conditions, the Fund invests at
least 65% of its assets in the equity securities of companies of any size
engaged in the design, development and/or marketing of Internet related services
or products. The Fund may also invest in companies that are expected to benefit
indirectly from the Internet and related business applications. The Fund may
purchase securities through initial public offerings.
The Fund's management team believes that the Internet is a fertile
growth area, and actively seeks to position the Fund to benefit from this growth
by investing in companies engaged in Internet-related business activities that
may deliver rapid earnings growth and potentially high investment returns. While
this is no guarantee of future performance, the Fund's management team believes
that this industry offers substantial opportunities for long-term capital
appreciation.
Although the Fund generally invests in common stock, it may also invest
in preferred stock, securities convertible into common stock, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), including corporate
bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may
also invest up to 5% of its net assets in debt securities that are rated Ba or
below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
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, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company
that at the time of investment has an outstanding debt issue rated Aaa or Aa by
Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell covered
put options with respect to up to 50% of the value of its net assets, and may
write covered call options so long as not more than 20% of the Fund's net assets
is subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of the value of its
total assets.
INVESTMENT RESTRICTIONS FOR THE 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 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, except that the Fund may concentrate its
investments in the securities of companies engaged in the design,
development and/or marketing of Internet related services or
products.
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) sell securities short, except for short sales, "against the box;"
(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 from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940;
(vii) purchase 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
(viii) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidations.
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.
EQUITY SECURITIES
Equity securities can be issued by companies to raise cash; all equity
securities shares represent a proportionate ownership interest in a company. As
a result, the value of equity securities rises and falls with a company's
success or failure. The market value of equity securities 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 equity securities. 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
equity securities changes, and, therefore, also tends to follow movements in the
general market for equity securities. When the market price of the underlying
equity securities increases, the price of a convertible security tends to rise
as a reflection of the value of the underlying equity securities, although
typically not as much as the price of the underlying equity securities. While no
securities investments are without risk, investments in convertible securities
generally entail less risk than investments in equity securities 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- AND MEDIUM-SIZED 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. The 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 the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
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 and AAA by
S&P are judged to be of the best quality (i.e., capacity to pay interest and
repay principal is extremely strong). Bonds rated Aa/AA are considered to be of
high quality (i.e., capacity to pay interest and repay principal is very strong
and differs from the highest rated issues only to a small degree). Bonds rated A
are viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, if so, could be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly.
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.
INVESTMENT CONCENTRATION
Although the Fund will not invest more than 25% of its total assets in
any one industry and does not expect to focus its investments in a single
country, it may at any given time have a significant percentage of its total
assets in one or more market sectors and could have a substantial portion of its
total assets invested in a particular country. If this were to occur, the Fund
could experience a wider fluctuation in value than funds with more diversified
portfolios.
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 or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
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 was 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 obligations in an OTC transaction, the
Fund would need to negotiate directly with the counterparty.
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, it 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.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Securities are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other securities 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.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trustees. Information about the Fund's investment manager and other service
providers appears in the "Investment Advisory and Other Services" section,
below.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
<S> <C> <C>
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).
Keith J. Carlson Chairman Senior Vice President of Mackenzie
700 South Federal Hwy. and Investment Management, Inc. (1996-
Suite 300 Trustee -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).
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).
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
Dianne Lister Trustee President and Chief Executive Officer,
556 University Avenue The Hospital for Sick Children
Toronto, Ontario L4J 2T4 Foundation (1993-present); Chief
Operating Officer, The Hospital for Sick
Children Foundation (1992-1993);
Executive Vice President, The
Hospital for Sick Children
Foundation (1991-1992).
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).
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>
<PAGE>
COMPENSATION TABLE
IVY FUND
PENSION OR
RETIREMENT ESTIMATED TOTAL COMPENSATION
BENEFITS ANNUAL FROM TRUST AND FUND
AGGREGATE ACCRUED AS BENEFITS COMPLEX PAID TO
COMPENSATION PART OF FUND UPON TRUSTEES**
NAME, FROM TRUST* EXPENSES RETIREMENT
POSITION
John S. $21,500 N/A N/A $21,500
Anderegg, Jr.
(Trustee)
James W. $0 N/A N/A $0
Broadfoot
(Trustee and
President)
Paul H. $21,500 N/A N/A $21,500
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
Chairman)
Stanley $21,500 N/A N/A $21,500
Channick
(Trustee)
Roy J. $21,500 N/A N/A $21,500
Glauber
(Trustee)
Dianne $21,500 N/A N/A $21,500
Lister
(Trustee)
Joseph G. $21,500 N/A N/A $21,500
Rosenthal
(Trustee)
Richard N. $21,500 N/A N/A $21,500
Silverman
(Trustee)
J. Brendan $21,500 N/A N/A $21,500
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
* Estimated for the Fund's initial fiscal year ending December 31, 2000.
** Estimated for the Fund's initial fiscal year ending December 31, 2000.
The Fund complex consists of Ivy Fund and Mackenzie Solutions.
As of the date of this SAI, the Officers and Trustees of the Trust as
a group owned no shares of the Fund.
<PAGE>
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the
Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of
Ethics"), which 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, in compliance with Rule 17j-1 under the 1940
Act. The Code of Ethics permits employees of IMI, IMDI and the Trust to engage
in personal securities transactions, including with respect to securities held
by one or more Funds, subject to certain requirements and restrictions. Among
other things, the Code of Ethics, which applies to portfolio managers, traders,
research analysts and others involved in the investment advisory process,
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions in certain securities may not be
made, and requires the submission of duplicate broker confirmations and
quarterly and annual reporting of securities transactions. Exceptions to certain
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate officers or compliance personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI"), Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, provides investment advisory and
business management services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement
was approved by the sole shareholder of the Fund on April 14, 2000. Before that,
the Advisory Agreement was approved at a meeting held on April 14, 2000 by the
Fund's Board of Trustees, including a majority of the Trustees who are neither
"interested persons" (as defined in the 1940 Act) of the Fund nor have any
direct or indirect financial interest in the operation of the Fund's
distribution plan (see "Distribution Services") or in any related agreement
(referred to herein as the "Independent Trustees").
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"), Via Mizner Financial Plaza, 700 South Federal Highway, Boca
Raton, Florida 33432, a Delaware corporation with approximately 10% of its
outstanding common stock listed 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. IMI currently acts as manager and investment
adviser to the other series of Ivy Fund and the five series of Mackenzie
Solutions.
The Advisory 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 Internal Revenue Code of 1986, as amended (the
"Code"), relating to regulated investment companies, and subject to policy
decisions adopted by the Trustees. IMI has delegated to Cundill the primary
responsibility for determining which securities the Fund should purchase and
sell (see "Sub-Advisor," below.)
Under the Advisory Agreement, IMI is also 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 needed; (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 Fund 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 Fund to serve in such
capacities; and (7) take such other action with respect to the Fund, upon the
approval of its trustees, as may be required by applicable law, including
without limitation the rules and regulations of the Securities and Exchange
Commission (the "SEC") and of state securities commissions and other regulatory
agencies.
The Fund pays IMI a fee for its services under the Advisory Agreement
at an annual rate of 1.00% of the Fund's average net assets.
Under the Advisory Agreement, the Trust is also responsible for 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.
TERM AND TERMINATION OF ADVISORY AGREEMENT
The initial term of the Advisory Agreement is two years from April 14,
2000. The Advisory Agreement will continue in effect with respect to the Fund
from year to year, or for more than the initial period, as the case may be, only
so long as such 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 Advisory Agreement (or adoption of any new
agreement) is presented to shareholders, continuance (or adoption) shall occur
only if approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. (See "Capitalization and Voting Rights.")
The Advisory 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 Advisory Agreement shall terminate automatically in the event of
its assignment.
DISTRIBUTION SERVICES
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Fund's shares pursuant to an
Amended and Restated Distribution Agreement with the Trust dated 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 continuously, 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 purchase and redemption orders
on its behalf. 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.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class The Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under
the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors and filed with the SEC. At meetings held
on February 3-4, 2000, the Trustees 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 to 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, respectively. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of Fund
shares, answering routine inquiries concerning the Fund and assisting
shareholders in changing options or enrolling in specific plans. Pursuant to
each Plan, service fee payments made out of or charged against the assets
attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fees compensate IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Trustees who are not "interested persons" (as defined in the 1940
Act) of the Fund shall be committed to the discretion of Trust who are not
"interested persons" of the Fund.
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 banks,
investment advisers, financial institutions and other entities 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 or other party if at the end of each year
the amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly. As of the date of this SAI, no payments had been made
under the Plans with respect to the Fund.
The Class B Plan and underwriting agreement 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. 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 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.
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 any Plan is terminated (or not
renewed) with respect to any of the Ivy funds (or class of shares thereof), each
may continue in effect with respect to any other fund (or Class of shares
thereof) as to which 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 Fund's assets. Rules adopted under
the 1940 Act permit the Trust to maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Pursuant
to those rules, the Custodian has entered into subcustodial agreements for the
holding of the Fund's foreign securities. With respect to the Fund, the
Custodian may receive, as partial payment for its services to the Fund, a
portion of the Trust's brokerage business, subject to its ability to provide
best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to the Fund Accounting Services Agreement, MIMI provides
certain accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million. As of the date of this SAI, no payments have been
made under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenazie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. As of the date of this SAI, no payments
have been made by the Fund for transfer agency services. Certain broker-dealers
that maintain shareholder accounts with the Fund through an omnibus account
provide transfer agent and other shareholder-related services that would
otherwise be provided by IMSC if the individual accounts that comprise the
omnibus account were opened by their beneficial owners directly. IMSC pays such
broker-dealers a per account fee for each open account within the omnibus
account, or a fixed rate (e.g., .10%) fee, based on the average daily net asset
value of the omnibus account (or a combination thereof). As of the date of this
SAI, no payments have been made by the Fund with respect to the provision of
these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 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 shares.
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
As of the date of this SAI, no payments have been made by the Fund with respect
to the provision of these services for the Fund.
AUDITORS
PricewaterhouseCoopers LLP, independent certified public accountants,
have been selected as auditors for the Fund. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
the Fund. Other services provided principally relate to filings with the SEC and
the preparation of the Fund's tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of other
Ivy, IMI or Cundill managed funds as a factor in the selection of broker-dealers
and may select broker-dealers who provide it with research services. IMI will
not, however, execute brokerage transactions other than at the best price and
execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for Fund shares with
securities and may discontinue accepting securities as payment for Fund shares
at any time without notice. The Trust will value accepted securities in the
manner and at the same time provided for valuing portfolio securities of the
Fund, and 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 Fund 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 (the "Declaration of
Trust") permits the Trustees to create separate series or portfolios and to
divide any series or portfolio into one or more classes. Pursuant to the
Declaration of Trust, the Trustees may terminate the Fund without shareholder
approval. This might occur, for example, if the Fund does not reach an
economically viable size. The Trustees have authorized twenty-one 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 the Ivy
Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy
Cundill Value Fund, Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund,
Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund,
Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, 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 Next Wave
Internet Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting them differently, separate votes by the shareholders of the 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 the Fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general 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 of the Trust, 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 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.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
As of the date of this SAI, there were no Fund shares outstanding other
than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the 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 Declaration of Trust also 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 any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
Prospectus. The Trust offers (and except as noted below) bears the cost of
providing, to investors the following additional 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 Cundill Value
Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global
Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund,
Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy
International Fund II, Ivy International Small Companies Fund, Ivy International
Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South
Americthe Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other
twenty series of the Trust). Shareholders should obtain a current prospectus
before exercising any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables the Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
To use this privilege, please complete Sections 6A and 7B of the Account
Application that is included with the Prospectus.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.)
Class A shareholders may also exchange their shares for shares of Ivy
Money Market Fund (no initial sales charge will be assessed at the time of such
an exchange).
The 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 the
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 the Fund) 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 the 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 the
Fund exercising the exchange privilege will continue to be subject to the Fund's
CDSC period following an exchange if such period is longer than the CDSC period,
if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to the Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to the Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of the Ivy Cundill
Value Fund, Ivy Next Wave Internet Fund, Ivy Asia Pacific Fund, Ivy Bond Fund,
Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European Opportunities
Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South Americthe
Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A
PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following
paragraph, Class I shareholders may exchange their outstanding Class I shares
for Class I shares of another Ivy fund on the basis of the relative net asset
value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000. 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
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 backdated. A shareholder may include, as an accumulation credit,
the value (at the applicable offering price) of all Class A shares of Ivy
Cundill Value Fund, Ivy Next Wave Internet Fund, Ivy Asia Pacific Fund, Ivy Bond
Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South Americthe 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, IMSC 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 the letter before signing.
RETIREMENT PLANS
Shares of the Fund 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 some aspects of 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 the
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 the 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 (and his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includible in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. There are
special rules for determining what portion of any distribution is allocable to
deductible and to non-deductible contributions. In general, distributions from
an IRA to an individual before he or she reaches age 59-1/2 are subject to a
nondeductible penalty tax equal to 10% of the taxable amount of the
distribution. The 10% penalty tax does not apply to amounts withdrawn from an
IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses, amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAs: Shares of the Fund also may be used as the Funding medium
for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA are taxable and subject to a
10% tax penalty unless an exception applies. Exceptions to the 10% penalty
include: disability, deductible medical expenses, certain purchases of health
insurance for an 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
Adoption 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 Adoption 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 Adoption 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 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 Fund 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 any contributions or benefits
are credited to those employees under any other qualified retirement plan
maintained by the employer.
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
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."
REDUCED SALES CHARGES AND 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" are 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 the
Fund 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 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 Fund 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
Fund 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, 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 Fund and IMI
each currently charge a maintenance fee of $3.00 (or portion thereof) for each
twelve-month period (or portion thereof) that the account is maintained. The
Fund 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 Fund 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 Fund 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. The Fund may delay for up to seven days
delivery of the proceeds of a wire redemption request of $250,000 or more if
considered 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 their "fair value" as determined by
IMI in accordance with procedures 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 their 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 is not managed for tax-efficiency.
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 the 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 the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
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 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 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 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 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.
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'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 the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of
$1,000 to purchase shares of a specific
class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Fund's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities, as of March 14, 2000,
and Report of Independent Accountants are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("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 MARCH 14, 2000
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY NEXT WAVE INTERNET FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
ASSETS
Cash...............................................................$ 50
Prepaid offering costs............................................. 24,500
Prepaid blue sky fees.............................................. 42,000
Total Assets................................................... 66,550
------
LIABILITIES
Due to affiliate................................................... 66,500
------
NET ASSETS.............................................................. $ 50
======
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
($10.00 / 1 share outstanding)................................. $ 10.00
======
NET ASSETS CONSISTS OF:
Capital paid-in $ 50
======
<PAGE>
* On sales of more than $50,000 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 NEXT WAVE INTERNET FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
1. ORGANIZATION: Ivy Next Wave Internet 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 or about April 15, 2000. 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 $5,500,
comprised of $2,500 for auditing and $3,000 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COSTS AND PREPAID BLUE SKY FEES: Offering costs, consisting of legal
fees and prospectus printing costs, and blue sky fees will be amortized over a
one year period beginning on or about April 15, 2000, the date the Fund is
expected to commence operations. Offering costs and blue sky fees of $24,500 and
$42,000, respectively, will be 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 Adviser of the Fund.
Currently, IMI contractually limits the Fund's total operating expenses
(excluding 12b-1 fees and certain other expenses) to an annual rate of 1.95% of
its average net assets. This reimbursement rate is determined annually.
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 March 14, 2000.
<PAGE>
[PricewaterhouseCoopers letterhead]
Report of Independent Certified Public Accountants
To the Board of Trustees and
Shareholders of Ivy Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Ivy Next Wave
Internet Fund (the "Fund") at March 14, 2000, in conformity with accounting
principles generally accepted in the United States. This financial statement is
the responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
March 15, 2000
<PAGE>
IVY NEXT WAVE INTERNET FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
ADVISOR CLASS SHARES
April 17, 2000
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of twenty-one 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 Next Wave Internet Fund (the "Fund"). The other
twenty 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 17, 2000 (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 Fund also offers 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
Page
GENERAL INFORMATION.........................................................4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................................4
EQUITY SECURITIES..................................................7
CONVERTIBLE SECURITIES.............................................8
SMALL COMPANIES....................................................8
INITIAL PUBLIC OFFERINGS...........................................9
DEBT SECURITIES....................................................9
IN GENERAL................................................9
INVESTMENT-GRADE DEBT SECURITIES..........................9
LOW-RATED DEBT SECURITIES.................................9
U.S.GOVERNMENT SECURITIES................................11
ZERO COUPON BONDS........................................12
FIRM COMMITMENT AGREEMENTS AND
"WHEN-ISSUED" SECURITIES.................................12
ILLIQUID SECURITIES...............................................12
FOREIGN SECURITIES................................................13
DEPOSITORY RECEIPTS...............................................14
EMERGING MARKETS..................................................14
FOREIGN CURRENCIES................................................16
FOREIGN CURRENCY EXCHANGE TRANSACTIONS............................16
INVESTMENT CONCENTRATION..........................................17
OTHER INVESTMENT COMPANIES........................................17
REPURCHASE AGREEMENTS.............................................17
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.................18
COMMERCIAL PAPER..................................................18
BORROWING.........................................................18
WARRANTS..........................................................19
OPTIONS TRANSACTIONS..............................................19
IN GENERAL...............................................19
WRITING OPTIONS ON INDIVIDUAL SECURITIES.................20
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES..............21
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.....21
RISKS OF OPTIONS TRANSACTIONS............................22
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS................23
IN GENERAL...............................................23
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS...24
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS........25
SECURITIES INDEX FUTURES CONTRACTS.......................26
RISKS OF SECURITIES INDEX FUTURES........................26
COMBINED TRANSACTIONS....................................28
PORTFOLIO TURNOVER.........................................................28
MANAGEMENT OF THE FUND.....................................................28
TRUSTEES AND OFFICERS.............................................28
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST......35
INVESTMENT ADVISORY AND OTHER SERVICES.....................................35
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..............35
INVESTMENT MANAGER................................................35
TERM AND TERMINATION OF ADVISORY AGREEMENT........................36
DISTRIBUTION SERVICES.............................................37
RULE 18F-3 PLAN..........................................37
CUSTODIAN.........................................................38
FUND ACCOUNTING SERVICES..........................................38
TRANSFER AGENT AND DIVIDEND PAYING AGENT..........................38
ADMINISTRATOR.....................................................39
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..................................................42
INDIVIDUAL RETIREMENT ACCOUNTS...........................43
ROTH IRAs................................................44
QUALIFIED PLANS..........................................45
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")....................45
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs.................46
SIMPLE PLANS.............................................46
SYSTEMATIC WITHDRAWAL PLAN........................................46
GROUP SYSTEMATIC INVESTMENT PROGRAM...............................47
REDEMPTIONS................................................................47
NET ASSET VALUE............................................................48
TAXATION 50
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...........50
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES............52
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES................52
DEBT SECURITIES ACQUIRED AT A DISCOUNT............................53
DISTRIBUTIONS.....................................................53
DISPOSITION OF SHARES.............................................54
FOREIGN WITHHOLDING TAXES.........................................54
BACKUP WITHHOLDING................................................55
PERFORMANCE INFORMATION....................................................56
AVERAGE ANNUAL TOTAL RETURN..............................56
CUMULATIVE TOTAL RETURN..................................57
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION....57
FINANCIAL STATEMENTS.......................................................58
APPENDIX A.................................................................59
APPENDIX B.................................................................62
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on April 17,
2000.
Descriptions in this SAI 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. For example, IMI may, in its discretion, employ a given practice,
technique for one or more funds but not for all funds advised by it. It is also
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. Investors should also be aware that certain practices,
techniques, or instruments could, regardless of their relative importance in the
Fund's overall investment strategy, 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." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the 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.
The Fund's principal objective is long-term capital growth. Any income
realized will be incidental. Under normal conditions, the Fund invests at least
65% of its assets in the equity securities of companies of any size engaged in
the design, development and/or marketing of Internet related services or
products. The Fund may also invest in companies that are expected to benefit
indirectly from the Internet and related business applications. The Fund may
purchase securities through initial public offerings.
The Fund's management team believes that the Internet is a fertile
growth area, and actively seeks to position the Fund to benefit from this growth
by investing in companies engaged in Internet-related business activities that
may deliver rapid earnings growth and potentially high investment returns. While
this is no guarantee of future performance, the Fund's management team believes
that this industry offers substantial opportunities for long-term capital
appreciation.
Although the Fund generally invests in common stock, it may also invest
in preferred stock, securities convertible into common stock, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), including corporate
bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may
also invest up to 5% of its net assets in debt securities that are rated Ba or
below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
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, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company
that at the time of investment has an outstanding debt issue rated Aaa or Aa by
Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell covered
put options with respect to up to 50% of the value of its net assets, and may
write covered call options so long as not more than 20% of the Fund's net assets
is subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of the value of its
total assets.
INVESTMENT RESTRICTIONS FOR THE 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 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, except that the Fund may concentrate its investments in the
securities of companies engaged in the design, development and/or
marketing of Internet related services or products.
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) sell securities short, except for short sales, "against the box;"
(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 from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940;
(vii) purchase 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
(viii) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidations.
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.
EQUITY SECURITIES
Equity securities can be issued by companies to raise cash; all equity
securities shares represent a proportionate ownership interest in a company. As
a result, the value of equity securities rises and falls with a company's
success or failure. The market value of equity securities 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 equity securities. 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
equity securities changes, and, therefore, also tends to follow movements in the
general market for equity securities. When the market price of the underlying
equity securities increases, the price of a convertible security tends to rise
as a reflection of the value of the underlying equity securities, although
typically not as much as the price of the underlying equity securities. While no
securities investments are without risk, investments in convertible securities
generally entail less risk than investments in equity securities 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- AND MEDIUM-SIZED 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. The 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 the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
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 and AAA by
S&P are judged to be of the best quality (i.e., capacity to pay interest and
repay principal is extremely strong). Bonds rated Aa/AA are considered to be of
high quality (i.e., capacity to pay interest and repay principal is very strong
and differs from the highest rated issues only to a small degree). Bonds rated A
are viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, if so, could be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly.
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.
INVESTMENT CONCENTRATION
Since the Fund focuses its investment in securities of companies
engaged in Internet-related business activities, the Fund could experience wider
fluctuations in value than funds with more diversified portfolios.
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 or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
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 was 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 obligations in an OTC transaction, the
Fund would need to negotiate directly with the counterparty.
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, it 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.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Securities are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other securities 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.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trustees. Information about the Fund's investment manager and other service
providers appears in the "Investment Advisory and Other Services" section,
below.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
<S> <C> <C>
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).
Keith J. Carlson Chairman Senior Vice President of Mackenzie
700 South Federal Hwy. and Investment Management, Inc. (1996-
Suite 300 Trustee -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).
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).
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
Dianne Lister Trustee President and Chief Executive Officer,
556 University Avenue The Hospital for Sick Children
Toronto, Ontario L4J 2T4 Foundation (1993-present); Chief
Operating Officer, The Hospital for Sick
Children Foundation (1992-1993);
Executive Vice President, The
Hospital for Sick Children
Foundation (1991-1992).
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).
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>
<PAGE>
COMPENSATION TABLE
IVY FUND
PENSION OR
RETIREMENT ESTIMATED TOTAL COMPENSATION
BENEFITS ANNUAL FROM TRUST AND FUND
AGGREGATE ACCRUED AS BENEFITS COMPLEX PAID TO
COMPENSATION PART OF FUND UPON TRUSTEES**
NAME, FROM TRUST* EXPENSES RETIREMENT
POSITION
John S. $21,500 N/A N/A $21,500
Anderegg, Jr.
(Trustee)
James W. $0 N/A N/A $0
Broadfoot
(Trustee and
President)
Paul H. $21,500 N/A N/A $21,500
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
Chairman)
Stanley $21,500 N/A N/A $21,500
Channick
(Trustee)
Roy J. $21,500 N/A N/A $21,500
Glauber
(Trustee)
Dianne $21,500 N/A N/A $21,500
Lister
(Trustee)
Joseph G. $21,500 N/A N/A $21,500
Rosenthal
(Trustee)
Richard N. $21,500 N/A N/A $21,500
Silverman
(Trustee)
J. Brendan $21,500 N/A N/A $21,500
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
* Estimated for the Fund's initial fiscal year ending December 31, 2000.
** Estimated for the Fund's initial fiscal year ending December 31, 2000.
The Fund complex consists of Ivy Fund and Mackenzie Solutions.
As of the date of this SAI, the Officers and Trustees of the Trust as
a group owned no shares of the Fund.
<PAGE>
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the
Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of
Ethics"), which 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, in compliance with Rule 17j-1 under the 1940
Act. The Code of Ethics permits employees of IMI, IMDI and the Trust to engage
in personal securities transactions, including with respect to securities held
by the Fund, subject to certain requirements and restrictions. Among other
things, the Code of Ethics, which applies to portfolio managers, traders,
research analysts and others involved in the investment advisory process,
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions in certain securities may not be
made, and requires the submission of duplicate broker confirmations and
quarterly and annual reporting of securities transactions. Exceptions to certain
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate officers or compliance personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI"), Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, provides investment advisory and
business management services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement
was approved by the sole shareholder of the Fund on April 14, 2000. Before that,
the Advisory Agreement was approved at a meeting held on April 14, 2000 by the
Fund's Board of Trustees, including a majority of the Trustees who are neither
"interested persons" (as defined in the 1940 Act) of the Fund nor have any
direct or indirect financial interest in the operation of the Fund's
distribution plan (see "Distribution Services") or in any related agreement
(referred to herein as the "Independent Trustees").
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"), Via Mizner Financial Plaza, 700 South Federal Highway, Boca
Raton, Florida 33432, a Delaware corporation with approximately 10% of its
outstanding common stock listed 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. IMI currently acts as manager and investment
adviser to the other series of Ivy Fund and the five series of Mackenzie
Solutions.
The Advisory 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 Internal Revenue Code of 1986, as amended (the
"Code"), relating to regulated investment companies, and subject to policy
decisions adopted by the Trustees. IMI has delegated to Cundill the primary
responsibility for determining which securities Ivy Cundill Value Fund should
purchase and sell (see "Sub-Advisor," below.)
Under the Advisory Agreement, IMI is also 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 needed; (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 Fund 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 Fund to serve in such
capacities; and (7) take such other action with respect to the Fund, upon the
approval of its trustees, as may be required by applicable law, including
without limitation the rules and regulations of the Securities and Exchange
Commission (the "SEC") and of state securities commissions and other regulatory
agencies.
The Fund pays IMI a fee for its services under the Advisory Agreement
at an annual rate of 1.00% of the Fund's average net assets.
Under the Advisory Agreement, the Trust is also responsible for 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.
TERM AND TERMINATION OF ADVISORY
The initial term of the Advisory Agreement is two years from April 14,
2000. The Advisory Agreement will continue in effect with respect to the Fund
from year to year, or for more than the initial period, as the case may be, only
so long as such 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 Advisory Agreement (or adoption of any new
agreement) is presented to shareholders, continuance (or adoption) shall occur
only if approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. (See "Capitalization and Voting Rights.")
The Advisory 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 Advisory Agreement shall terminate automatically in the event of
its assignment.
DISTRIBUTION SERVICES
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Fund's shares pursuant to an
Amended and Restated Distribution Agreement with the Trust dated 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 continuously, 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 purchase and redemption orders
on its behalf. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will be
deemed to have received a purchase or redemption order when an authorized
intermediary or, if applicable, an intermediary's authorized designee, accepts
the order. Client orders will be priced at the Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under
the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
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 and filed with the SEC. At a meeting
held on April 14, 2000, the Trustees adopted a Rule 18f-3 plan on behalf of the
Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each
class of the Fund represent an equal pro rata interest in the Fund and generally
have identical voting, dividend, liquidation, and other rights, preferences,
powers, restrictions, limitations, qualifications, terms and conditions, except
that each class bears certain class-specific expenses and has separate voting
rights on certain matters that relate solely to that class or in which the
interests of shareholders of one class differ from the interests of shareholders
of another class; (ii) subject to certain limitations described in the
Prospectus, shares of a particular class of the Fund may be exchanged for shares
of the same class of another Ivy fund; and (iii) the Fund's Class B shares will
convert automatically into Class A shares of the Fund after a period of eight
years, based on the relative net asset value of such shares at the time of
conversion.
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the Fund's assets. Rules adopted under
the 1940 Act permit the Trust to maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Pursuant
to those rules, the Custodian has entered into subcustodial agreements for the
holding of the Fund's foreign securities. With respect to the Fund, the
Custodian may receive, as partial payment for its services to the Fund, a
portion of the Trust's brokerage business, subject to its ability to provide
best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to the Fund Accounting Services Agreement, MIMI provides
certain accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million. As of the date of this SAI, no payments have been
made under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenazie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. As of the date of this SAI, no payments
have been made by the Fund for transfer agency services. Certain broker-dealers
that maintain shareholder accounts with the Fund through an omnibus account
provide transfer agent and other shareholder-related services that would
otherwise be provided by IMSC if the individual accounts that comprise the
omnibus account were opened by their beneficial owners directly. IMSC pays such
broker-dealers a per account fee for each open account within the omnibus
account, or a fixed rate (e.g., .10%) fee, based on the average daily net asset
value of the omnibus account (or a combination thereof). As of the date of this
SAI, no payments have been made by the Fund with respect to the provision of
these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 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 shares.
AUDITORS
PricewaterhouseCoopers LLP, independent certified public accountants,
have been selected as auditors for the Fund. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
the Fund. Other services provided principally relate to filings with the SEC and
the preparation of the Fund's tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of other Ivy
or IMI managed funds as a factor in the selection of broker-dealers and may
select broker-dealers who provide it with research services. IMI will not,
however, execute brokerage transactions other than at the best price and
execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for Fund shares with
securities and may discontinue accepting securities as payment for Fund shares
at any time without notice. The Trust will value accepted securities in the
manner and at the same time provided for valuing portfolio securities of the
Fund, and 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 Fund 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 (the "Declaration of
Trust") permits the Trustees to create separate series or portfolios and to
divide any series or portfolio into one or more classes. Pursuant to the
Declaration of Trust, the Trustees may terminate the Fund without shareholder
approval. This might occur, for example, if the Fund does not reach an
economically viable size. The Trustees have authorized twenty-one 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 the Ivy
Money Market Fund and Class A, Class B, Class C and Advisor Class shares for the
Ivy Cundill Value Fund, Ivy Next Wave Internet Fund, Ivy Asia Pacific Fund, Ivy
Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for the Fund, Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science
& Technology Fund, Ivy International Fund, Ivy International 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 them differently, separate votes by the shareholders of the 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 the Fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general 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 of the Trust, 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 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.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
As of the date of this SAI, there were no Fund shares outstanding other
than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the 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 Declaration of Trust also 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 any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
Prospectus. The Trust offers (and except as noted below) bears the cost of
providing, to investors the following additional 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 Cundill Value
Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global
Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund,
Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy
International Fund II, Ivy International Small Companies Fund, Ivy International
Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South
America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other
twenty series of the Trust). Shareholders should obtain a current prospectus
before exercising any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables the Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
To use this privilege, please complete Sections 6A and 7B of the Account
Application that is included with the Prospectus.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
RETIREMENT PLANS
Shares of the Fund 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 some aspects of 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 a 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 (and his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includible in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. There are
special rules for determining what portion of any distribution is allocable to
deductible and to non-deductible contributions. In general, distributions from
an IRA to an individual before he or she reaches age 59-1/2 are subject to a
nondeductible penalty tax equal to 10% of the taxable amount of the
distribution. The 10% penalty tax does not apply to amounts withdrawn from an
IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses, amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAs: Shares of the 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 are taxable and subject to a
10% tax penalty unless an exception applies. Exceptions to the 10% penalty
include: disability, deductible medical expenses, certain purchases of health
insurance for an 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
Adoption 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 Adoption 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 Adoption 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 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 Fund 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 any contributions or benefits
are credited to those employees under any other qualified retirement plan
maintained by the employer.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan") by telephone instructions 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 $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.
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 Fund 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
Fund 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, 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 Fund and IMI
each currently charge a maintenance fee of $3.00 (or portion thereof) for each
twelve-month period (or portion thereof) that the account is maintained. The
Fund 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 Fund reserves the right to change these fees from time to time without
advance notice.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC. Unless a
shareholder requests that the proceeds of any redemption be wired to his or her
bank account, payment for shares tendered for redemption is made by check within
seven days after tender in proper form, except that the Fund 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 Advisor Class accounts of shareholders who
have maintained an investment, including sales charges paid, of less than
$10,000 in the Fund for a period of more than 12 months. All Advisor Class
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $10,000 balance will be determined by actual dollar amounts
invested by the shareholder, unaffected by market fluctuations. The Trust will
notify any such shareholder by certified mail of its intention to redeem such
account, and the shareholder shall have 60 days from the date of such letter to
invest such additional sums as shall raise the value of such account above that
minimum. Should the shareholder fail to forward such sum within 60 days of the
date of the Trust's letter of notification, the Trust will redeem the shares
held in such account and transmit the redemption in value thereof to the
shareholder. However, those shareholders who are investing pursuant to the
Automatic Investment Method will not be redeemed automatically unless they have
ceased making payments pursuant to the plan for a period of at least six
consecutive months, and these shareholders will be given six-months' notice by
the Trust before such redemption. Shareholders in a qualified retirement,
pension or profit sharing plan who wish to avoid tax consequences must
"rollover" any sum so redeemed into another qualified plan within 60 days. The
Trustees of the Trust may change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. The Fund may delay for up to seven days
delivery of the proceeds of a wire redemption request of $250,000 or more if
considered 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.
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 their "fair value" as determined by
IMI in accordance with procedures 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 their 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 is not managed for tax-efficiency.
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 the 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 the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
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 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 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 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 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.
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'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 the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase
shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Fund's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities, as of March 14, 2000,
and Report of Independent Accountants are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("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 MARCH 14, 2000
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY NEXT WAVE INTERNET FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
ASSETS
Cash..............................................................$ 50
Prepaid offering costs............................................ 24,500
Prepaid blue sky fees............................................. 42,000
Total Assets.................................................. 66,550
------
LIABILITIES
Due to affiliate.................................................. 66,500
------
NET ASSETS.............................................................$ 50
======
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
($10.00 / 1 share outstanding)................................ 10.00
======
NET ASSETS CONSISTS OF:
Capital paid-in $ 50
======
<PAGE>
* On sales of more than $50,000 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 NEXT WAVE INTERNET FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
MARCH 14, 2000
1. ORGANIZATION: Ivy Next Wave Internet 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 or about April 15, 2000. 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 $5,500,
comprised of $2,500 for auditing and $3,000 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COSTS AND PREPAID BLUE SKY FEES: Offering costs, consisting of legal
fees and prospectus printing costs, and blue sky fees will be amortized over a
one year period beginning on or about April 15, 2000, the date the Fund is
expected to commence operations. Offering costs and blue sky fees of $24,500 and
$42,000, respectively, will be 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 Adviser of the Fund.
Currently, IMI contractually limits the Fund's total operating expenses
(excluding 12b-1 fees and certain other expenses) to an annual rate of 1.95% of
its average net assets. This reimbursement rate is determined annually.
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 March 14, 2000.
<PAGE>
[PricewaterhouseCoopers letterhead]
Report of Independent Certified Public Accountants
To the Board of Trustees and
Shareholders of Ivy Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Ivy Next Wave
Internet Fund (the "Fund") at March 14, 2000, in conformity with accounting
principles generally accepted in the United States. This financial statement is
the responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
March 15, 2000
<PAGE>
PART C. OTHER INFORMATION
Item 23: Exhibits:
(a) Articles of Incorporation:
(1) Amended and Restated Declaration of Trust dated
December 10, 1992, filed with Post-Effective
Amendment No. 102 and incorporated by reference
herein.
(2) Redesignation of Shares of Beneficial Interest and
Establishment and Designation of Additional Series
and Classes of Shares of Beneficial Interest (No Par
Value) filed with Post-Effective Amendment No. 102
and incorporated by reference herein.
(3) Amendment to Amended and Restated Declaration of
Trust, filed with Post-Effective Amendment No. 102
and incorporated by reference herein.
(4) Amendment to Amended and Restated Declaration of
Trust, filed with Post-Effective Amendment No. 102
and incorporated by reference herein.
(5) Establishment and Designation of Additional Series
(Ivy Emerging Growth Fund), filed with Post-Effective
Amendment No. 102 and incorporated by reference
herein.
(6) Redesignation of Shares (Ivy Growth with Income
Fund--Class A) and Establishment and Designation of
Additional Class (Ivy Growth with Income Fund--Class
C), filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(7) Redesignation of Shares (Ivy Emerging Growth
Fund--Class A, Ivy Growth Fund--Class A and Ivy
International Fund--Class A), filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(8) Establishment and Designation of Additional Series
(Ivy China Region Fund), filed with Post-Effective
Amendment No. 102 and incorporated by reference
herein.
(9) Establishment and Designation of Additional Class
(Ivy China Region Fund--Class B, Ivy Emerging Growth
Fund--Class B, Ivy Growth Fund--Class B, Ivy Growth
with Income Fund--Class B and Ivy International
Fund--Class B), filed with Post-Effective Amendment
No. 102 and incorporated by reference herein.
(10) Establishment and Designation of Additional Class
(Ivy International Fund--Class I), filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(11) Establishment and Designation of Series and Classes
(Ivy Latin American Strategy Fund--Class A and Class
B, Ivy New Century Fund--Class A and Class B), filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(12) Establishment and Designation of Series and Classes
(Ivy International Bond Fund--Class A and Class B),
filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(13) Establishment and Designation of Series and Classes
(Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, Ivy
Short-Term US Government Securities Fund (now known
as Ivy Short-Term Bond Fund) -- Class A and Class B),
filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(14) Redesignation of Ivy Short-Term U.S. Government
Securities Fund as Ivy Short-Term Bond Fund, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(15) Redesignation of Shares (Ivy Money Market Fund--Class
A and Ivy Money Market Fund--Class B), filed with
Post-Effective Amendment No. 84 and incorporated by
reference herein.
(16) Form of Establishment and Designation of Additional
Class (Ivy Bond Fund--Class C; Ivy Canada Fund--Class
C; Ivy China Region Fund--Class C; Ivy Emerging
Growth Fund--Class C; Ivy Global Fund--Class C; Ivy
Growth Fund--Class C; Ivy Growth with Income
Fund--Class C; Ivy International Fund--Class C; Ivy
Latin America Strategy Fund--Class C; Ivy
International Bond Fund--Class C; Ivy Money Market
Fund--Class C; Ivy New Century Fund--Class C), filed
with Post-Effective Amendment No. 84 and incorporated
by reference herein.
(17) Establishment and Designation of Series and Classes
(Ivy Global Science & Technology Fund--Class A, Class
B, Class C and Class I), filed with Post-Effective
Amendment No. 86 and incorporated by reference
herein.
(18) Establishment and designation of Series and Classes
(Ivy Global Natural Resources Fund--Class A, Class B
and Class C; Ivy Asia Pacific Fund--Class A, Class B
and Class C; Ivy International Small Companies
Fund--Class A, Class B, Class C and Class I), filed
with Post-Effective Amendment No. 89 and incorporated
by reference herein.
(19) Establishment and designation of Series and Classes
(Ivy Pan-Europe Fund--Class A, Class B and Class C),
filed with Post-Effective Amendment No. 92 and
incorporated by reference herein.
(20) Establishment and designation of Series and Classes
(Ivy International Fund II--Class A, Class B, Class C
and Class I), filed with Post-Effective Amendment No.
94 and incorporated by reference herein.
(21) Form of Establishment and Designation of Additional
Class (Ivy Asia Pacific Fund--Advisor Class; Ivy Bond
Fund--Advisor Class; Ivy Canada Fund--Advisor Class;
Ivy China Region Fund--Advisor Class; Ivy Emerging
Growth Fund--Advisor Class; Ivy Global Fund--Advisor
Class; Ivy Global Natural Resources Fund--Advisor
Class; Ivy Global Science & Technology Fund--Advisor
Class; Ivy Growth Fund--Advisor Class; Ivy Growth
with Income Fund--Advisor Class; Ivy International
Bond Fund--Advisor Class; Ivy International Fund
II--Advisor Class; Ivy International Small Companies
Fund--Advisor Class; Ivy Latin America Strategy
Fund--Advisor Class; Ivy New Century Fund--Advisor
Class; Ivy Pan-Europe Fund--Advisor Class), filed
with Post-Effective Amendment No. 96 and incorporated
by reference herein.
(22) Redesignations of Series and Classes (Ivy Emerging
Growth Fund redesignated as Ivy US Emerging Growth
Fund; Ivy New Century Fund redesignated as Ivy
Developing Nations Fund; and, Ivy Latin America
Strategy Fund redesignated as Ivy South America
Fund), filed with Post-Effective Amendment No. 97 to
Registration Statement 2-17613 and incorporated by
reference herein.
(23) Redesignation of Series and Classes and Establishment
and Designation of Additional Class (Ivy
International Bond Fund redesignated as Ivy High
Yield Fund; Class I shares of Ivy High Yield Fund
established), filed with Post-Effective Amendment No.
98 to Registration Statement 2-17613 and incorporated
by reference herein.
(24) Establishment and designation of Series and Classes
(Ivy US Blue Chip Fund--Class A, Class B, Class C,
Class I and Advisor Class), filed with Post-Effective
Amendment No. 101 to Registration Statement 2-17613
and incorporated by reference herein.
(25) Redesignation of Series and Classes (Ivy High Yield
Fund redesignated as Ivy International Strategic Bond
Fund) filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(26) Establishment and designation of Series and Classes
(Ivy European Opportunities Fund -- Class A, Class B,
Class C, Class I and Advisor Class) filed with
Post-Effective Amendment No. 110 and incorporated by
reference herein.
(27) Establishment and designation of Series and Classes
(Ivy Cundill Value Fund -- Class A, Class B, Class C,
Class I and Advisor Class) filed with Post-Effective
Amendment No. 113 and incorporated by reference
herein.
(28) Establishment and designation of Series and Classes
Ivy Next Wave Internet Fund -- Class A, Class B,
Class C, Class I and Advisor Class) filed with
Post-Effective Amendment No. 113 and incorporated by
reference herein.
(b) By-laws:
(1) By-Laws, as amended, filed with Post-
Effective Amendment No. 102 and incorporated by
reference herein.
(c) Instruments Defining the Rights of Security
Holders:
(1) Specimen Securities for Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund
and Ivy Money Market Fund, filed with Post-Effective
Amendment No. 49 and incorporated by reference
herein.
(2) Specimen Security for Ivy Emerging
Growth Fund, filed with Post-Effective Amendment No.
70 and incorporated by reference herein.
(3) Specimen Security for Ivy China Region
Fund, filed with Post-Effective Amendment No. 74 and
incorporated by reference herein.
(4) Specimen Security for Ivy Latin American
Strategy Fund, filed with Post-Effective Amendment
No. 75 and incorporated by reference herein.
(5) Specimen Security for Ivy New Century
Fund, filed with Post-Effective Amendment No. 75 and
incorporated by reference herein.
(6) Specimen Security for Ivy International
Bond Fund, filed with Post-Effective Amendment No. 76
and incorporated by reference herein.
(7) Specimen Securities for Ivy Bond Fund,
Ivy Canada Fund, Ivy Global Fund, and Ivy Short-Term
U.S. Government Securities Fund, filed with
Post-Effective Amendment No. 77 and incorporated by
reference herein.
(d) Investment Advisory Contracts:
(1) Master Business Management and
Investment Advisory Agreement between Ivy Fund and
Ivy Management, Inc. and Supplements for Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy International
Fund and Ivy Money Market Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(2) Subadvisory Contract by and among Ivy
Fund, Ivy Management, Inc. and Boston Overseas
Investors, Inc., filed with Post-Effective Amendment
No. 102 and incorporated by reference herein.
(3) Assignment Agreement relating to
Subadvisory Contract, filed with Post-Effective
Amendment No. 102 and incorporated by reference
herein.
(4) Business Management and Investment
Advisory Agreement Supplement for Ivy Emerging Growth
Fund, filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(5) Business Management and Investment
Advisory Agreement Supplement for Ivy China Region
Fund, filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(6) Business Management and Investment
Advisory Supplement for Ivy Latin America Strategy
Fund, filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(7) Business Management and Investment
Advisory Agreement Supplement for Ivy New Century
Fund, filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(8) Business Management and Investment
Advisory Agreement Supplement for Ivy International
Bond Fund, filed with Post-Effective Amendment No.
102 and incorporated by reference herein.
(9) Business Management and Investment
Advisory Agreement Supplement for Ivy Bond Fund, Ivy
Global Fund and Ivy Short-Term U.S. Government
Securities Fund, filed with Post-Effective Amendment
No. 102 and incorporated by reference herein.
(10) Master Business Management Agreement
between Ivy Fund and Ivy Management, Inc., filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(11) Supplement to Master Business Agreement
between Ivy Fund and Ivy Management, Inc. (Ivy Canada
Fund), filed with Post-Effective Amendment No. 102
and incorporated by reference herein.
(12) Investment Advisory Agreement between
Ivy Fund and Mackenzie Financial Corporation, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(13) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy Global Science
& Technology Fund), filed with Post-Effective
Amendment No. 86 and incorporated by reference
herein.
(14) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy Asia Pacific
Fund and Ivy International Small Companies Fund),
filed with Post-Effective Amendment No. 89 and
incorporated by reference herein.
(15) Form of Supplement to Master Business
Management Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy Global Natural Resources Fund),
filed with Post-Effective Amendment No. 89 and
incorporated by reference herein.
(16) Form of Supplement to Investment
Advisory Agreement between Ivy Fund and Mackenzie
Financial Corporation (Ivy Global Natural Resources
Fund), filed with Post-Effective Amendment No. 89 and
incorporated by reference herein.
(17) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy Pan-Europe
Fund), filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(18) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy International
Fund II), filed with Post-Effective Amendment No. 94
and incorporated by reference herein.
(19) Addendum to Master Business Management
and Investment Advisory Agreement between Ivy Fund
and Ivy Management, Inc. (Ivy Developing Nations
Fund, Ivy South America Fund, Ivy US Emerging Growth
Fund), filed with Post-Effective Amendment No. 98 and
incorporated by reference herein.
(20) Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy High Yield
Fund), filed with Post-Effective Amendment No. 98 and
incorporated by reference herein.
(21) Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy US Blue Chip
Fund), filed with Post-Effective Amendment No. 101 to
Registration Statement 2-17613 and incorporated by
reference herein.
(22) Supplement to Master Business
Management and Investment Advisory Agreement between Ivy
Fund and Ivy Management, Inc. (Ivy International
Strategic Bond Fund) filed with Post-Effective Amendment
No. 110 and incorporated by reference herein.
(23) Supplement to Master Business
Management and Investment Advisory Agreement between Ivy
Fund and Ivy Management, Inc. (Ivy European
Opportunities Fund) filed with Post-Effective Amendment
No. 110 and incorporated by reference herein.
(24) Subadvisory Agreement between Ivy
Management, Inc. and Henderson Investment Management
Limited (Ivy International Small Companies Fund) filed
with Post-Effective Amendment No. 110 and incorporated
by reference herein.
(25) Amendment to Subadvisory Agreement
between Ivy Management, Inc. and Henderson Investment
Management Limited (Ivy European Opportunities Fund)
filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(26) Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy Cundill Value
Fund and Ivy Next Wave Internet Fund) filed with this
Post-Effective Amendment No. 114.
(27) Subadvisory Agreement between Ivy
Management, Inc. and Peter Cundill & Associates, Inc.
(Ivy Cundill Value Fund) filed with this Post-Effective
Amendment No. 114.
(e) Underwriting Contracts:
(1) Dealer Agreement, as amended, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(2) Amended and Restated Distribution
Agreement, filed with Post-Effective Amendment No. 102
and incorporated by reference herein.
(3) Addendum to Amended and Restated
Distribution Agreement, filed with Post-Effective
Amendment No. 102 and incorporated by reference herein.
(4) Addendum to Amended and Restated
Distribution Agreement (Ivy Money Market Fund--Class A
and Class B), filed with Post-Effective Amendment No. 84
and incorporated by reference herein.
(5) Form of Addendum to Amended and Restated
Distribution Agreement (Class C), filed with
Post-Effective Amendment No. 84 and incorporated by
reference herein.
(6) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Science & Technology
Fund--Class A, Class B, Class C and Class I), filed with
Post-Effective Amendment No. 86 and incorporated by
reference herein.
(7) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Natural Resources
Fund--Class A, Class B and Class C; Ivy Asia Pacific
Fund--Class A, Class B and Class C; Ivy International
Small Companies Fund--Class A, Class B, Class C, and
Class I), filed with Post-Effective Amendment No. 89 and
incorporated by reference herein.
(8) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Pan-Europe Fund--Class A,
Class B and Class C), filed with Post-Effective
Amendment No. 94 and incorporated by reference herein.
(9) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy International Fund II--Class
A, Class B, Class C and Class I), filed with
Post-Effective Amendment No. 94 and incorporated by
reference herein.
(10) Form of Addendum to Amended and
Restated Distribution Agreement (Advisor Class), filed
with Post-Effective Amendment No. 96 and incorporated by
reference herein.
(11) Addendum to Amended and Restated
Distribution Agreement (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 and incorporated by
reference herein.
(12) Addendum to Amended and Restated
Distribution Agreement (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein.
(13) Addendum to Amended and Restated
Distribution Agreement (Ivy US Blue Chip Fund), filed
with Post-Effective Amendment No. 101 to Registration
Statement 2-17613 and incorporated by reference herein.
(14) Addendum to Amended and Restated
Distribution Agreement (Ivy International Strategic Bond
Fund) filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(15) Addendum to Amended and Restated
Distribution Agreement (Ivy European Opportunities Fund)
filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(16) Amended and Restated Distribution
Agreement, filed with Post-Effective Amendment No. 110
and incorporated by reference herein.
(17) Addendum to Amended and Restated
Distribution Agreement (Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund) filed with this Post-Effective
Amendment No. 114.
(f) Bonus or Profit Sharing Contracts: Inapplicable.
(g) Custodian Agreements:
(1) Custodian Agreement between Ivy Fund and
Brown Brothers Harriman & Co., filed with Post-Effective
Amendment No. 102 and incorporated by reference herein.
(2) Foreign Custody Manager Delegation
Agreement between Ivy Fund and Brown Brothers Harriman &
Co., filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(h) Other Material Contracts:
(1) Master Administrative Services Agreement
between Ivy Fund and Mackenzie Investment Management
Inc. and Supplements for Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Fund and Ivy Money
Market Fund, filed with Post-Effective Amendment No. 102
and incorporated by reference herein.
(2) Addendum to Administrative Services
Agreement Supplement for Ivy International Fund,
filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(3) Administrative Services Agreement
Supplement for Ivy Emerging Growth Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(4) Administrative Services Agreement
Supplement for Ivy Money Market Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(5) Administrative Services Agreement
Supplement for Ivy China Region Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(6) Administrative Services Agreement
Supplement for Class I Shares of Ivy International
Fund, filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(7) Master Fund Accounting Services
Agreement between Ivy Fund and Mackenzie Investment
Management Inc. and Supplements for Ivy Growth Fund, Ivy
Emerging Growth Fund and Ivy Money Market Fund, filed
with Post-Effective Amendment No. 102 and incorporated
by reference herein.
(8) Fund Accounting Services Agreement
Supplement for Ivy Growth with Income Fund, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(9) Fund Accounting Services Agreement
Supplement for Ivy China Region Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(10) Transfer Agency and Shareholder
Services Agreement between Ivy Fund and Ivy Management,
Inc., filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(11) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(12) Assignment Agreement relating to
Transfer Agency and Shareholder Services Agreement,
filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(13) Administrative Services Agreement
Supplement for Ivy Latin America Strategy Fund, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(14) Administrative Services Agreement
Supplement for Ivy New Century Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(15) Fund Accounting Services Agreement
Supplement for Ivy Latin America Strategy Fund, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(16) Fund Accounting Services Agreement
Supplement for Ivy New Century Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(17) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(18) Administrative Services Agreement
Supplement for Ivy International Bond Fund, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(19) Fund Accounting Services Agreement
Supplement for International Bond Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(20) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(21) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(22) Administrative Services Agreement
Supplement for Ivy Bond Fund, Ivy Global Fund and Ivy
Short-Term U.S. Government Securities Fund, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(23) Fund Accounting Services Agreement
Supplement for Ivy Bond Fund, Ivy Global Fund and Ivy
Short-Term U.S. Government Securities Fund, filed
with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(24) Form of Administrative Services
Agreement Supplement (Class C) for Ivy Bond Fund, Ivy
Canada Fund, Ivy China Region Fund, Ivy Emerging
Growth Fund, Ivy Global Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund, Ivy
International Bond Fund, Ivy Latin America Strategy
Fund, Ivy Money Market Fund and Ivy New Century Fund,
filed with Post-Effective Amendment No. 84 and
incorporated by reference herein.
(25) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Class C), filed with
Post-Effective Amendment No. 84 and incorporated by
reference herein.
(26) Form of Administrative Services
Agreement Supplement for Ivy Global Science &
Technology Fund, filed with Post-Effective Amendment
No. 86 and incorporated by reference herein.
(27) Form of Fund Accounting Services
Agreement Supplement for Ivy Global Science &
Technology Fund, filed with Post-Effective Amendment
No. 86 and incorporated by reference herein.
(28) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Global Science
& Technology Fund, filed with Post-Effective
Amendment No. 86 and incorporated by reference
herein.
(29) Form of Administrative Services
Agreement Supplement for Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy International
Small Companies Fund, filed with Post-Effective
Amendment No. 89 and incorporated by reference
herein.
(30) Form of Fund Accounting Services
Agreement Supplement for Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy International
Small Companies Fund, filed with Post-Effective
Amendment No. 89 and incorporated by reference
herein.
(31) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund, filed with
Post-Effective Amendment No. 89 and incorporated by
reference herein.
(32) Form of Administrative Services
Agreement Supplement for Ivy Pan-Europe Fund, filed
with Post-Effective Amendment No. 94 and incorporated
by reference herein.
(33) Form of Fund Accounting Services
Agreement Supplement for Ivy Pan-Europe Fund, filed
with Post-Effective Amendment No. 94 and incorporated
by reference herein.
(34) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Pan-Europe
Fund, filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(35) Form of Administrative Services
Agreement Supplement for Ivy International Fund II,
filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(36) Form of Fund Accounting Services
Agreement Supplement for Ivy International Fund II,
filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(37) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy International
Fund II, filed with Post-Effective Amendment No. 94
and incorporated by reference herein.
(38) Form of Administrative Services
Agreement Supplement (Advisor Class) for Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy
China Region Fund, Ivy Emerging Growth Fund, Ivy
Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Bond
Fund, Ivy International Fund II, Ivy International
Small Companies Fund, Ivy Latin America Strategy
Fund, Ivy New Century Fund and Ivy Pan-Europe Fund,
filed with Post-Effective Amendment No. 96 and
incorporated by reference herein.
(39) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Advisor Class), filed
with Post-Effective Amendment No. 96 and incorporated
by reference herein.
(40) Addendum to Administrative Services
Agreement (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 and incorporated
by reference herein.
(41) Addendum to Fund Accounting Services
Agreement (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 and incorporated
by reference herein.
(42) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy Developing
Nations Fund, Ivy South America Fund, Ivy US Emerging
Growth Fund, Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein.
(43) Addendum to Fund Accounting Services
Agreement (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein.
(44) Addendum to Administrative Services
Agreement (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein.
(45) Amended Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy Developing
Nations Fund, Ivy South America Fund, Ivy US Emerging
Growth Fund, Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein (a corrected version of which was
filed with Post-Effective Amendment No. 99).
(46) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy US Blue Chip
Fund), filed with Post-Effective Amendment No. 101 to
Registration Statement 2-17613 and incorporated by
reference herein.
(47) Addendum to Fund Accounting Services
Agreement (Ivy US Blue Chip Fund), to be filed with
Post-Effective Amendment No. 101 to Registration
Statement 2-17613 and incorporated by reference
herein.
(48) Addendum to Administrative Services
Agreement (Ivy US Blue Chip Fund), filed with
Post-Effective Amendment No. 101 to Registration
Statement 2-17613 and incorporated by reference
herein.
(49) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy International
Strategic Bond Fund) filed with Post-Effective Amendment
No. 110 and incorporated by reference herein.
(50) Addendum to Fund Accounting Services
Agreement (Ivy International Strategic Bond Fund) filed
with Post-Effective Amendment No. 110 and incorporated
by reference herein.
(51) Addendum to Administrative Services
Agreement (Ivy International Strategic Bond Fund) filed
with Post-Effective Amendment No. 110 and incorporated
by reference herein.
(52) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy European
Opportunities Fund) filed with Post-Effective Amendment
No. 110 and incorporated by reference herein.
(53) Addendum to Fund Accounting Services
Agreement (Ivy European Opportunities Fund) filed with
Post-Effective Amendment No. 110 and incorporated by
reference herein.
(54) Addendum to Administrative Services
Agreement (Ivy European Opportunities Fund) filed with
Post-Effective Amendment No. 110 and incorporated by
reference herein.
(55) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy Cundill Value
Fund and Ivy Next Wave Internet Fund) filed with this
Post-Effective Amendment No. 114.
(56) Addendum to Fund Accounting Services
Agreement (Ivy Cundill Value Fund and Ivy Next Wave
Internet Fund) filed with this Post-Effective
Amendment No. 114.
(57) Addendum to Administrative Services
Agreement (Ivy Cundill Value Fund and Ivy Next Wave
Internet Fund) filed with this Post-Effective
Amendment No. 114.
(i) Legal Opinion: Opinion and consent of counsel filed with
this Post-Effective Amendment No. 114.
(j) Other Opinions: Consent of accountants filed with this
Post-Effective Amendment No. 114. (Opinions of
accountants filed with Post-Effective Amendment No. 113
and incorporated by reference herein.)
(k) Omitted Financial Statements: Reports of accountants
filed with Post-Effective Amendment No. 113 and
incorporated by reference herein.
(l) Initial Capital Agreements: Not applicable.
(m) Rule 12b-1 Plan:
(1) Amended and Restated Distribution Plan
for Class A shares of Ivy China Region Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund and Ivy Emerging Growth Fund,
filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(2) Distribution Plan for Class B shares of
Ivy China Region Fund, Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Fund and Ivy
Emerging Growth Fund, filed with Post-Effective
Amendment No. 102 and incorporated by reference
herein.
(3) Distribution Plan for Class C Shares of
Ivy Growth with Income Fund, filed with
Post-Effective Amendment No. 102 and incorporated by
reference herein.
(4) Form of Rule 12b-1 Related Agreement,
filed with Post-Effective Amendment No. 102 and
incorporated by reference herein.
(5) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment No. 102
and incorporated by reference herein.
(6) Supplement to Distribution Plan for Ivy
Fund Class B Shares, filed with Post-Effective
Amendment No. 103 and incorporated by reference
herein.
(7) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment No. 103
and incorporated by reference herein.
(8) Supplement to Distribution Plan for Ivy
Fund Class B Shares, filed with Post-Effective
Amendment No. 103 and incorporated by reference
herein.
(9) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment No. 103
and incorporated by reference herein.
(10) Supplement to Distribution Plan for Ivy
Fund Class B Shares, filed with Post-Effective
Amendment No. 103 and incorporated by reference
herein.
(11) Form of Supplement to Distribution Plan
for Ivy Growth with Income Fund Class C Shares
(Redesignation as Class D Shares), filed with
Post-Effective Amendment No. 84 and incorporated by
reference herein.
(12) Form of Distribution Plan for Class C
shares of Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy Emerging Growth Fund, Ivy Global
Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Bond Fund,
Ivy Latin America Strategy Fund and Ivy New Century
Fund, filed with Post-Effective Amendment No. 85 and
incorporated by reference herein.
(13) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Global Science & Technology Fund), filed
with Post-Effective Amendment No. 87 and incorporated
by reference herein.
(14) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy Global Science &
Technology Fund), filed with Post-Effective Amendment
No. 87 and incorporated by reference herein.
(15) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy Global Science &
Technology Fund), filed with Post-Effective Amendment
No. 87 and incorporated by reference herein.
(16) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Global Natural Resources Fund, Ivy Asia
Pacific Fund and Ivy International Small Companies
Fund), filed with Post-Effective Amendment No. 89 and
incorporated by reference herein.
(17) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund), filed with
Post-Effective Amendment No. 89 and incorporated by
reference herein.
(18) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund), filed with
Post-Effective Amendment No. 89 and incorporated by
reference herein.
(19) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Pan-Europe Fund), filed with
Post-Effective Amendment No. 94 and incorporated by
reference herein.
(20) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy Pan-Europe Fund),
filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(21) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy Pan-Europe Fund),
filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(22) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy International Fund II), filed with
Post-Effective Amendment No. 94 and incorporated by
reference herein.
(23) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy International Fund
II), filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(24) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy International Fund
II), filed with Post-Effective Amendment No. 94 and
incorporated by reference herein.
(25) Amendment to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 and incorporated
by reference herein.
(26) Amendment to Distribution Plan for Ivy
Fund Class B Shares (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging Growth Fund),
filed with Post-Effective Amendment No. 98 and
incorporated by reference herein.
(27) Amendment to Distribution Plan for Ivy
Fund Class C Shares (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging Growth Fund),
filed with Post-Effective Amendment No. 98 and
incorporated by reference herein.
(28) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein.
(29) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein.
(30) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 and incorporated by
reference herein.
(31) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy US Blue Chip Fund), filed with
Post-Effective Amendment No. 101 and incorporated by
reference herein.
(32) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy US Blue Chip Fund), filed
with Post-Effective Amendment No. 101 and
incorporated by reference herein.
(33) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy US Blue Chip Fund), filed
with Post-Effective Amendment No. 101 and
incorporated by reference herein.
(34) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A Shares
(Ivy International Strategic Bond Fund) filed with
Post-Effective Amendment No. 110 and incorporated by
reference herein.
(35) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy International Strategic Bond
Fund) filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(36) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy International Strategic Bond
Fund) filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(37) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A Shares
(Ivy European Opportunities Fund) filed with
Post-Effective Amendment No. 110 and incorporated by
reference herein.
(38) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy European Opportunities Fund)
filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(39) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy European Opportunities Fund)
filed with Post-Effective Amendment No. 110 and
incorporated by reference herein.
(40) Form of Amended and Restated
Distribution Plan For Ivy Fund Class B Shares, filed
with Post-Effective Amendment No. 107 and
incorporated by reference herein.
(41) Amended and Restated Distribution Plan
for Ivy Fund Class A Shares, filed with
Post-Effective Amendment No. 111 and incorporated by
reference herein.
(42) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Cundill Value Fund and Ivy Next Wave
Internet Fund) filed with this Post-Effective
Amendment No. 114.
(43) Supplement to Amended and Restated
Distribution Plan for Ivy Fund Class B Shares (Ivy
Cundill Value Fund and Ivy Next Wave Internet Fund)
filed with this Post-Effective Amendment No. 114.
(44) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund) filed with this
Post-Effective Amendment No. 114.
(n) Rule 18f-3 Plans:
(1) Plan adopted pursuant to Rule 18f-3
under the Investment Company Act of 1940, filed with
Post-Effective Amendment No. 83 and incorporated by
reference herein.
(2) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 85 and incorporated by reference
herein.
(3) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 87 and incorporated by reference
herein.
(4) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 89 and incorporated by reference
herein.
(5) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 92 and incorporated by reference
herein.
(6) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 94 and incorporated by reference
herein.
(7) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 96 and incorporated by reference
herein.
(8) Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment Company
Act of 1940, filed with Post-Effective Amendment No.
98 and incorporated by reference herein (a corrected
version of which was filed with Post-Effective
Amendment No. 99).
(9) Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment Company
Act of 1940, filed with Post-Effective Amendment No.
101 to Registration Statement 2-17613 and
incorporated by reference herein.
(10) Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment Company
Act of 1940, filed with Post-Effective Amendment No.
110 and incorporated by reference herein.
(11) Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment Company
Act of 1940, filed with this Post-Effective Amendment
No. 114.
(p) Codes of Ethics:
(1) Code of Ethics of Mackenzie Investment
Management Inc., filed with Post-Effective
Amendment No. 113 and incorporated by
reference herein.
(2) Code of Ethics of Peter Cundill &
Associates, Inc., filed with Post-Effective
Amendment No. 113 and incorporated by
reference herein.
Item 24. Persons Controlled by or Under Common Control with the Fund:
Not applicable
Item 25. Indemnification
A policy of insurance covering Ivy Management, Inc. and the
Registrant will insure the Registrant's trustees and officers
and others against liability arising by reason of an actual or
alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other negligent act.
Reference is made to Article VIII of the Registrant's Amended
and Restated Declaration of Trust, dated December 10, 1992,
filed with Post-Effective Amendment No. 71 and incorporated by
reference herein.
Item 26. Business and Other Connections of Investment Adviser
Information Regarding Adviser and Subadviser Under Advisory
Arrangements. Reference is made to the Form ADV of each of Ivy
Management, Inc., the Adviser and Business Manager to nineteen
series of the Trust, Mackenzie Financial Corporation, the
adviser to Ivy Global Natural Resources Fund, Northern Cross
Investments Limited (the successor to Boston Overseas
Investors, Inc.), the adviser to Ivy International Fund,
Henderson Investment Management Limited, the subadviser to Ivy
European Opportunities Fund and a portion of Ivy International
Small Companies Fund, and Peter Cundill & Associates (Bermuda)
Ltd., the subadviser to Ivy Cundill Value Fund.
The list required by this Item 26 of officers and directors of
Ivy Management, Inc., Mackenzie Financial Corporation,
Northern Cross Investments Limited, Henderson Investment
Management Limited, and Peter Cundill & Associates (Bermuda)
Ltd., together with information as to any other business
profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two
years, is incorporated by reference to Schedules A and D of
each firm's respective Form ADV.
Item 27. Principal Underwriters
(a) Ivy Mackenzie Distributors, Inc. ("IMDI"), formerly
Mackenzie Ivy Funds Distributors, Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300,
Boca Raton, Florida 33432, Registrant's distributor, is
a subsidiary of Mackenzie Investment Management Inc.
("MIMI"), Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432. IMDI is
the successor to MIMI's distribution activities. IMDI
also serves as the distributor for Mackenzie Solutions.
(b) The information required by this Item 27 regarding each
director, officer or partner of IMDI is incorporated by
reference to Schedule A of Form BD filed by IMDI
pursuant to the Securities Exchange Act of 1934.
(c) Not applicable
Item 28. Location of Accounts and Records
The information required by this item is incorporated by
reference to Item 7 of Part II of Post-Effective Amendment No.
46.
Item 29. Management Services: Not applicable.
Item 30. Undertakings: Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 114 to
its Registration Statement pursuant to Rule 485(b)(1) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment No. 114 to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, and the Commonwealth of Massachusetts,
on the 17th day of April, 2000.
IVY FUND
By: James W. Broadfoot***
---------------------
President
By: /S/ JOSEPH R. FLEMING
Joseph R. Fleming, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 114 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
JOHN S. ANDEREGG, JR.* Trustee 4/17/00
PAUL H. BROYHILL* Trustee 4/17/00
JAMES W. BROADFOOT*** Trustee and President 4/17/00
KEITH J. CARLSON** Trustee and Chairman 4/17/00
(Chief Executive Officer)
STANLEY CHANNICK* Trustee 4/17/00
C. WILLIAM FERRIS* Treasurer (Chief 4/17/00
Financial Officer)
ROY J. GLAUBER* Trustee 4/17/00
JOSEPH G. ROSENTHAL* Trustee 4/17/00
RICHARD N. SILVERMAN* Trustee 4/17/00
J. BRENDAN SWAN* Trustee 4/17/00
DIANNE LISTER*** Trustee 4/17/00
EDWARD M. TIGHE*** Trustee 4/17/00
By: /S/ JOSEPH R. FLEMING
Joseph R. Fleming, Attorney-in-Fact
* Executed pursuant to powers of attorney filed with Post-Effective
Amendments Nos. 69, 73, 74, 84 and 89 to Registration Statement No.
2-17613.
** Executed pursuant to power of attorney filed with Post-Effective
Amendment No. 89 to Registration Statement No. 2-17613.
*** Executed pursuant to power of attorney filed with Post-Effective
Amendment No. 111 to Registration Statement No. 2-17613.
<PAGE>
EXHIBIT INDEX
Exhibit (d)(26): Supplement to Master Business Management and Investment
Advisory Agreement between Ivy Fund and Ivy Management,
Inc. (Ivy Cundill Value Fund and Ivy Next Wave Internet
Fund).
Exhibit (d)(27): Subadvisory Agreement between Ivy Management, Inc. and
Peter Cundill & Associates, Inc. (Ivy Cundill Value
Fund).
Exhibit (e)(17): Addendum to Amended and Restated Distribution Agreement
(Ivy Cundill Value Fund and Ivy Next Wave Internet
Fund).
Exhibit (h)(55): Addendum to Transfer Agency and Shareholder Services
Agreement (Ivy Cundill Value Fund and Ivy Next Wave
Internet Fund)
Exhibit (h)(56): Addendum to Fund Accounting Services Agreement (Ivy
Cundill Value Fund and Ivy Next Wave Internet Fund).
Exhibit (h)(57): Addendum to Administrative Services Agreement (Ivy
Cundill Value Fund and Ivy Next Wave Internet Fund).
Exhibit (i): Opinion and Consent of Dechert Price & Rhoads
Exhibit (j): Consent of PricewaterhouseCoopers.
Exhibit (m)(42): Supplement to Master Amended and Restated Distribution
Plan for Ivy Fund Class A Shares (Ivy Cundill Value Fund
and Ivy Next Wave Internet Fund).
Exhibit (m)(43): Supplement to Amended and Restated Distribution Plan for
Ivy Fund Class B Shares (Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund).
Exhibit (m)(44): Supplement to Distribution Plan for Ivy Fund Class C
(Ivy Cundill Value Fund and Ivy Next Wave Internet
Fund).
Exhibit (n)(11): Amended and Restated Plan adopted pursuant to Rule 18f-3
under the Investment Company Act of 1940.
Exhibit d(26)
IVY FUND
MASTER BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
AGREEMENT SUPPLEMENT
Ivy Cundill Value Fund
Ivy Next Wave Internet Fund
AGREEMENT made as of the 14th day of April, 2000, by and between Ivy
Fund (the "Trust") and Ivy Management, Inc. (the "Manager").
WHEREAS, the Trust is an open-end investment company, organized as a
Massachusetts business trust, and consists of such separate investment
portfolios as have been or may be established and designated by the Trustees of
the Trust from time to time;
WHEREAS, a separate class of shares of the Trust is offered to
investors with respect to each investment portfolio;
WHEREAS, the Trust has adopted a Master Business Management and
Investment Advisory Agreement dated December 31, 1991 (the "Master Agreement"),
pursuant to which the Trust has appointed the Manager to provide the business
management and investment advisory services specified in that Master Agreement;
and
WHEREAS, Ivy Cundill Value Fund and Ivy Next Wave Internet Fund (each,
a "Fund" and collectively the "Funds") are separate investment portfolio of the
Trust.
NOW, THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided for in the Master Agreement, the Trust hereby adopts the
Master Agreement with respect to the Funds, and the Manager hereby acknowledges
that the Master Agreement shall pertain to the Funds, the terms and conditions
of such Master Agreement being hereby incorporated herein by reference.
2. The term "Portfolio" as used in the Master Agreement shall, for
purposes of this Supplement, pertain to each Fund.
3. As provided in the Master Agreement and subject to further
conditions as set forth therein, each Fund shall pay the Manager a monthly fee
on the first business day of each month based upon the average daily value (as
determined on each business day at the time set forth in the Prospectus of each
Fund for determining net asset value per share) of the net assets of that Fund
during the preceding month at the annual rate of 1.00%.
4. This Supplement and the Master Agreement (together, the "Agreement")
shall become effective with respect to each of the Funds as of the date
specified above, and unless sooner terminated as hereinafter provided, the
Agreement shall remain in effect with respect to a Fund for a period of more
than two (2) years from such date only so long as the continuance is
specifically approved at least annually (a) by the vote of a majority of the
outstanding voting securities of that Fund (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")) or by the Trust's entire Board of
Trustees and (b) by the vote, cast in person at a meeting called for that
purpose, of a majority of the Trust's Independent Trustees. This Agreement may
be terminated with respect to a Fund at any time, without payment of any
penalty, by vote of a majority of the outstanding voting securities of the Fund
(as defined in the 1940 Act) or by vote of a majority of the Trust's entire
Board of Trustees on sixty (60) days' written notice to the Manager or by the
Manager on sixty (60) days' written notice to the Trust. This Agreement shall
terminate automatically in the event of its assignment (as defined in the 1940
Act).
IVY FUND, on behalf of
Ivy Cundill Value Fund and
Ivy Next Wave Internet Fund
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
IVY MANAGEMENT, INC.
By: /s/ KEITH J. CARLSON
Keith J. Carlson, President
Exhibit d(27)
SUBADVISORY AGREEMENT
AGREEMENT made as of the 1st day of March, 2000, between IVY
MANAGEMENT, INC., 700 South Federal Highway, Boca Raton, Florida 33432 U.S.A., a
Massachusetts corporation (hereinafter called the "Manager"), and PETER CUNDILL
& ASSOCIATES, Inc., a corporation incorporated under the laws of Delaware at PO
Box 50133, Santa Barbara, CA 93150 USA (hereinafter called the "Subadviser").
WHEREAS, Ivy Fund (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Manager has entered into a Master Business Management and
Investment Advisory Agreement dated December 31, 1991, as amended (the "Advisory
Agreement"), with the Trust, pursuant to which the Manager acts as investment
adviser to the portfolio assets of certain series of the Trust listed on
Schedule A hereto, as amended from time to time (each a "Fund" and,
collectively, the "Funds"); and
WHEREAS, the Manager desires to utilize the services of the Subadviser
as investment subadviser with respect to certain portfolio assets of each Fund;
and
WHEREAS, the Subadviser is willing to perform such services on the
terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
1. Duties of the Subadviser. The Subadviser will serve the Manager as
investment subadviser with respect to certain portfolio assets of
each Fund, as set forth on the attached Schedule A.
<PAGE>
- 10 -
(a) As investment subadviser to the Funds, the Subadviser is
hereby authorized and directed and hereby agrees, in
accordance with the Subadviser's best judgment and
subject to the stated investment objectives, policies
and restrictions of the Funds as set forth in the
current prospectuses and statements of additional
information of the Trust (including amendments) and in
accordance with the Trust's Declaration of Trust, as
amended, and By-laws governing the offering of its
shares (collectively, the "Trust Documents"), the 1940
Act and the provisions of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), relating
to regulated investment companies, and subject to such
resolutions as from time to time may be adopted by the
Trust's Board of Trustees, and provided that the Trust
Documents are all furnished to the Subadviser, to
develop, recommend and implement such investment program
and strategy for the Funds as may from time to time be
most appropriate to the achievement of the investment
objectives of the Funds as stated in the aforesaid
prospectuses, to provide research and analysis relative
to the investment program and investments of the Funds,
to determine what securities should be purchased and
sold and to monitor on a continuing basis the
performance of the portfolio securities of the Funds.
(b) The Subadviser agrees to comply with the investment
objective and policies as set out in the Funds
registration statement in providing its investment
advisory services and to notify the Manager on a timely
basis of any lapse in compliance with the objective and
policies.
(c) The Subadviser shall (i) comply with all reasonable
requests of the Trust (through the Manager) for
information, including information required in
connection with the Trust's filings with the Securities
and Exchange Commission (the "SEC") and state securities
commissions, and (ii) provide such other services as the
Subadviser shall from time to time determine to be
necessary or useful to the administration of the Funds.
(d) The Subadviser shall furnish to the Manager for
distribution to the Trust's Board of Trustees periodic
reports on the investment performance of each Fund and
on the performance of its obligations under this
Agreement and shall supply such additional reports and
information as the Trust's officers or Board of Trustees
shall reasonably request.
<PAGE>
(e) On occasions when the Subadviser deems the purchase or
sale of a security to be in the best interest of a Fund
as well as other customers, the Subadviser, to the
extent permitted by applicable law, may aggregate the
securities to be so sold or purchased in order to obtain
the best execution or lower brokerage commissions, if
any. The Subadviser also may purchase or sell a
particular security for one or more customers in
different amounts. On either occasion, and to the extent
permitted by applicable law and regulations, allocation
of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by
the Subadviser in the manner it considers to be the most
equitable and consistent with its fiduciary obligations
to the Fund involved and to such other customers. In no
instance, however, will a Fund's assets be purchased
from or sold to the Manager, the Subadviser, the Trust's
principal underwriter, or any affiliated person of
either the Trust, the Manager, the Subadviser or the
principal underwriter, acting as principal in the
transaction, except to the extent permitted by the SEC
and the 1940 Act.
(f) Consistent with U.S. securities laws, the Subadviser
agrees to adopt written trade allocation procedures that
are "fair and equitable" to its clients which are
consistent with the investment policies set out in the
prospectuses and statements of additional information
(including amendments) of the Funds or as the Trust's
Board of Trustees may direct from time to time. The
Subadviser also agrees to effect securities transactions
in client accounts consistent with the allocation system
described in such written procedures, to keep accurate
records of such transactions and to fully disclose such
trade allocation procedures and practices to clients.
(g) The Subadviser shall provide the Funds' custodian on
each business day with information relating to all
transactions concerning each Fund's assets and shall
provide the Manager with such information upon request
of the Manager.
(h) The investment advisory services provided by the
Subadviser under this Agreement are not to be deemed
exclusive and the Subadviser shall be free to render
similar services to others, as long as such services do
not impair the services rendered to the Manager or the
Trust.
(i) The Subadviser shall promptly notify the Manager of any
financial condition that is likely to impair the
Subadviser's ability to fulfill its commitment under
this Agreement.
<PAGE>
2. Delivery of Documents to the Manager. The Subadviser has furnished
the Manager with copies of each of the following documents:
(a) The Subadviser's current Form ADV and any amendments
thereto, if applicable;
(b) The Subadviser's most recent audited balance sheet;
(c) Separate lists of persons whom the Subadviser wishes to
have authorized to give written and/or oral instructions
to the custodian and the fund accounting agent of Trust
assets for the Funds; and
(d) The Code of Ethics of the Subadviser as currently in
effect.
The Subadviser will furnish the Manager from time to
time with copies, properly certified or otherwise
authenticated, of all material amendments of or
supplements to the foregoing, if any. Additionally, the
Subadviser will provide to the Manager such other
documents relating to its services under this Agreement
as the Manager may reasonably request on a periodic
basis. Such amendments or supplements as to items (a)
through (d) above will be provided within 30 days of the
time such materials became available to the Subadviser.
3. Expenses. The Subadviser shall pay all of its expenses arising from
the performance of its obligations under this Agreement.
4. Compensation. The Manager shall pay to the Subadviser for its
services hereunder, and the Subadviser agrees to accept as full
compensation therefor, a fee with respect to each Fund as set forth
on Schedule B. Such fee shall be accrued daily on the basis of the
value of the portion of the average daily net assets of the
applicable Fund as are then being managed by the Subadviser and
shall be payable monthly. If the Subadviser shall serve hereunder
for less than the whole of any month, the fee hereunder shall be
prorated accordingly.
<PAGE>
5. Purchase and Sale of Securities. The Subadviser will determine the
securities to be purchased or sold with respect to the portion of
each Fund's portfolio assets being managed by it, and shall purchase
securities from or through and sell securities to or through such
persons, brokers or dealers as the Subadviser shall deem appropriate
in order to carry out the policy with respect to allocation of
portfolio transactions as described in section 1.(f) of this
Agreement and statements of additional information (including
amendments) of the Funds. In providing the Funds with investment
management and supervision, it is recognized that the Subadviser
will seek the most favorable price and execution, and, consistent
with such policy, may give consideration to the research services
furnished by brokers or dealers to the Subadviser for its use and to
such other considerations as the Trust's Board of Trustees may
direct or authorize from time to time.
Nothing in this Agreement shall be implied to prevent: (i) the
Manager from engaging other subadvisers to provide investment advice
and other services in relation to series of the Trust, or a portion
of the portfolio assets of any such series, for which the Subadviser
does not provide such services, or to prevent the Manager from
providing such services itself in relation to such series; or (ii)
the Subadviser from providing investment advice and other services
to other funds or clients.
In the performance of its duties hereunder, the Subadviser is and
shall be an independent contractor and except as expressly provided
herein or otherwise authorized in writing, shall have no authority
to act for or represent the Trust, the Funds, any other series of
the Trust or the Manager in any way or otherwise be deemed to be an
agent of the Trust, the Funds, any other series of the Trust or the
Manager.
<PAGE>
6. Term of Agreement. This Agreement shall continue in full force and
effect until February 1, 2002 and from year to year thereafter if
such continuance is approved in the manner required by the 1940 Act
if the Subadviser shall not have notified the Manager in writing at
least 60 days prior to such February 1 or prior to February 1 of any
year thereafter that it does not desire such continuance. This
Agreement may be terminated at any time, without payment of penalty
by a Fund, by vote of the Trust's Board of Trustees or a majority of
the outstanding voting securities of the applicable Fund (as defined
by the 1940 Act), or by the Manager upon 30 days written notice or
by the Subadviser upon 120 days' written notice. This Agreement will
automatically terminate in the event of its assignment (as defined
by the 1940 Act) or upon the termination of the Advisory Agreement,
or if (a) either party is unable to pay its debts or an
administrative or insolvency order is made in respect of a party
pursuant to its relevant governing and applicable laws and
regulations.
7. Amendments. This Agreement may be amended by consent of the parties
hereto provided that the consent of the applicable Fund is obtained
in accordance with the requirements of the 1940 Act.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Subadviser in connection with the
performance of its obligations hereunder is to be regarded as
confidential and for use only by the Manager, the Trust or such
persons as the Manager may designate in connection with the Funds.
It is also understood that any information supplied to the
Subadviser in connection with the performance of its obligations
hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the
Funds, is to be regarded as confidential and for use only by the
Subadviser in connection with its obligation to provide investment
advice and other services to the Funds.
9. Representations and Warranties. The Subadviser hereby represents and
warrants as follows:
(a) The Subadviser is registered with the SEC as an
investment adviser under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), and such
registration is current, complete and in full compliance
with all material applicable provisions of the Advisers
Act and the rules and regulations thereunder;
(b) The Subadviser has all requisite authority to enter
into, execute, deliver and perform the Subadviser's
obligations under this Agreement;
(c) The Subadviser's performance of its obligations under
this Agreement does not conflict with any law,
regulation or order to which the Subadviser is subject;
and
(d) The Subadviser has reviewed the portion of (i) the
registration statement filed with the SEC, as amended
from time to time, for the Funds ("Registration
Statement"), and (ii) each Fund's prospectuses and
statements of additional information (including
amendments) thereto, in each case in the form received
from the Manager with respect to the disclosure about
the Subadviser and the Funds of which the Subadviser has
knowledge ("Subadviser and Fund Information") and except
as advised in writing to the Manager such Registration
Statement, prospectuses and statements of additional
information (including amendments) contain, as of their
respective dates, no untrue statement of any material
fact of which the Subadviser has knowledge and do not
omit any statement of a material fact of which the
Subadviser has knowledge which was required to be stated
therein or necessary to make the statements contained
therein not misleading.
10. Covenants. The Subadviser hereby covenants and agrees that, so long
as this Agreement shall remain in effect:
(a) The Subadviser shall maintain the Subadviser's
registration as an investment adviser under the Advisers
Act, and such registration shall at all times remain
current, complete and in full compliance with all
material applicable provisions of the Advisers Act and
the rules and regulations thereunder;
(b) The Subadviser's performance of its obligations under
this Agreement shall not conflict with any law,
regulation or order to which the Subadviser is then
subject;
(c) The Subadviser shall at all times comply with the
Advisers Act and the 1940 Act, and all rules and
regulations thereunder, and all other applicable laws
and regulations, and the Registration Statement,
prospectuses and statements of additional information
(including amendments) and with any applicable
procedures adopted by the Trust's Board of Trustees,
provided that such procedures are substantially similar
to those applicable to similar funds for which the
Trust's Board of Trustees is responsible and that such
procedures are identified in writing to the Subadviser;
(d) The Subadviser shall promptly notify the Manager and the
Fund upon the occurrence of any event that might
disqualify or prevent the Subadviser from performing its
duties under this Agreement. The Subadviser shall
promptly notify the Manager and the Fund if there are
any changes to its organizational structure or the
Subadviser has become the subject of any adverse
regulatory action imposed by any regulatory body or
self-regulatory organization. The Subadviser further
agrees to notify the Manager of any changes relating to
it or the provision of services by it that would cause
the Registration Statement, prospectuses or statements
of additional information (including amendments) for the
Funds to contain any untrue statement of a material fact
or to omit to state a material fact which is required to
be stated therein or is necessary to make the statements
contained therein not misleading, in each case relating
to Subadviser and Fund Information;
(e) The Subadviser will manage the portion of each Fund's
portfolio assets for which it serves as subadviser under
this Agreement in a manner consistent with the Fund's
status as a regulated investment company under
Subchapter M of the Internal Revenue Code; and
(f) The Subadviser shall exercise its powers and discharge
its duties as adviser honestly, in good faith and in the
best interests of the Funds and shall exercise the
degree of care, diligence and skill that a reasonably
prudent person would exercise in the circumstances
provide that it has fulfilled its standard of care
obligation, the Subadviser will not be liable for any
loss sustained by reason of the adoption or
implementation of any investment objective or policy or
the purchase, sale or retention of any portfolio
investment by and on behalf of the Funds.
11. Use of Names.
(a) The Subadviser acknowledges and agrees that the names
Ivy Fund and Ivy Management, Inc, and abbreviations or
logos associated with those names, are the valuable
property of Manager and its affiliates; that the Funds,
the Manager and their affiliates have the right to use
such names, abbreviations and logos; and that the
Subadviser shall use the names Ivy Fund and Ivy
Management, Inc., and associated abbreviations and
logos, only in connection with the Subadviser's
performance of its duties hereunder. Further, in any
communication with the public and in any marketing
communications of any sort, Subadviser agrees to obtain
prior written approval from Manager before using or
referring to Ivy Fund, and Ivy Management, Inc, or the
Funds or any abbreviations or logos associated with
those names; provided that nothing herein shall be
deemed to prohibit the Subadviser from referring to the
performance of the Funds in the Subadviser's marketing
material as long as such marketing material does not
constitute "sales literature" or "advertising" for the
Funds, as those terms are used in the rules, regulations
and guidelines of the SEC and the National Association
of Securities Dealers, Inc.
(b) The Subadviser acknowledges that each Fund and its
agents may use the "Cundill" and "Peter Cundill" names
in connection with accurately describing the activities
of the Fund, including use with marketing and other
promotional and informational material relating to the
Fund. The Subadviser hereby agrees and consents to the
use of the Subadviser's name upon the foregoing terms
and conditions.
(c) The Subadviser acknowledges that each Fund and its
agents may use the "Cundill" name in conjunction with
accurately describing the activities of the Fund,
including use with marketing and other promotional
materials relating to the Fund with prior written
approval always of the Subadviser. In the event that the
Subadviser shall cease to be the Manager's subadviser of
a Fund, then the Fund at its own or the Manager's
expense, upon the Subadviser's written request: (i)
shall cease to use the Subadviser's name for any
commercial purpose; and (ii) shall use its best efforts
to cause the Fund's officers and trustees to take any
and all actions which may be necessary or desirable to
effect the foregoing and to reconvey to the Subadviser
all rights which a Fund may have to such name. Manager
agrees to take any and all reasonable actions as may be
necessary or desirable to effect the foregoing and
Subadviser agrees to allow the Funds and their agents a
reasonable time to effectuate the foregoing.
(d) The Subadviser hereby agrees and consents to the use of
the Subadviser's name upon the foregoing terms and
conditions.
12. Reports by the Subadviser and Records of the Funds. The Subadviser
shall furnish the Manager monthly, quarterly and annual reports
concerning transactions and performance of the Funds, including
information required to be disclosed in the Trust's Registration
Statement, in such form as may be mutually agreed. The Subadviser
shall permit the financial statements, books and records with
respect to the Funds to be inspected and audited by the Trust, the
Manager or their agents at all reasonable times during normal
business hours. The Subadviser shall immediately notify and forward
to both the Manager and legal counsel for the Trust any legal
process served upon it on behalf of the Manager or the Trust. The
Subadviser shall promptly notify the Manager of any changes in any
information concerning the Subadviser of which the Subadviser
becomes aware that would be required to be disclosed in the Trust's
Registration Statement.
In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Subadviser agrees that all records it maintains for the
Trust are the property of the Trust and further agrees to surrender
promptly to the Trust or the Manager any such records upon the
Trust's or the Manager's request. The Subadviser further agrees to
maintain for the Trust the records the Trust is required to maintain
under Rule 31a-1(b) insofar as such records relate to the investment
affairs of each Fund. The Subadviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records
it maintains for the Trust.
13. Indemnification. The Subadviser agrees to indemnify and hold
harmless the Manager, any affiliated person within the meaning of
Section 2(a)(3) of the 1940 Act ("affiliated person") of the Manager
and each person, if any, who, within the meaning of Section 15 of
the Securities Act of 1933, as amended (the "1933 Act"), controls
("controlling person") the Manager, against any and all losses,
claims, damages, liabilities or litigation (including reasonable
legal and other expenses), to which the Manager, the Trust or such
affiliated person or controlling person may become subject under the
1933 Act, the 1940 Act, the Advisers Act, under any other statute,
at common law or otherwise, arising out of Subadviser's
responsibilities as subadviser of the Funds (1) to the extent of and
as a result of the willful misconduct, bad faith, or gross
negligence of the Subadviser, any of the Subadviser's employees or
representatives or any affiliate of or any person acting on behalf
of the Subadviser, or (2) as a result of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, prospectuses or statements of additional
information covering the Funds or the Trust or any amendment thereof
or any supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, if such a
statement or omission was made in reliance upon written information
furnished by the Subadviser to the Manager, the Trust or any
affiliated person of the Manager or the Trust expressly for use in
the Trust's Registration Statement, or upon verbal information
confirmed by the Subadviser in writing expressly for use in the
Trust's Registration Statement or (3) to the extent of, and as a
result of, the failure of the Subadviser to execute, or cause to be
executed, portfolio transactions according to the standards and
requirements of the 1940 Act; provided, however, that in no case is
the Subadviser's indemnity in favor of the Manager or any affiliated
person or controlling person of the Manager deemed to protect such
person against any liability to which any such person would
otherwise be subject by reason of willful misconduct, bad faith or
gross negligence in the performance of its duties or by reason of
its reckless disregard of its obligations and duties under this
Agreement.
The Manager agrees to indemnify and hold harmless the Subadviser
against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which
the Subadviser or such affiliated person or controlling person may
become subject under the 1933 Act, the 1940 Act, the Advisers Act,
under any other statute, at common law or otherwise, arising out of
the Manager's responsibilities as investment manager of the Funds
(1) to the extent of and as a result of the willful misconduct, bad
faith, or gross negligence of the Manager, any of the Manager's
employees or representatives or any affiliate of or any person
acting on behalf of the Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement, prospectuses or statements of
additional information covering the Funds or the Trust or any
amendment thereof or any supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not
misleading, if such a statement or omission was made by the Trust
other than in reliance upon written information furnished by the
Subadviser, or any affiliated person of the Subadviser, expressly
for use in the Trust's Registration Statement or other than upon
verbal information confirmed by the Subadviser in writing expressly
for use in the Trust's Registration Statement; provided, however,
that in no case is the Manager's indemnity in favor of the
Subadviser deemed to protect such person against any liability to
which any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
14. Assignment by Subadviser. This Agreement shall not be assigned by
the Subadviser to any other person or company without the Manager's
prior written consent.
15. Jurisdiction. The Subadviser irrevocably submits to the jurisdiction
of any state or U.S. federal court sitting in the Commonwealth of
Massachusetts over any suit, action or proceeding arising out of or
relating to this proposal and the agreement contemplated herein. The
Subadviser irrevocably waives, to the fullest extent permitted by
law, any objection which it may have to the laying of the venue of
any such suit, action or proceeding brought in such a court and any
claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum. The Subadviser
agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be conclusive and binding upon the
Subadviser, and may be enforced to the extent permitted by
applicable law in any court of the jurisdiction of which the
Subadviser is subject by a suit upon such judgment, provided that
service of process is effected upon the Subadviser in the manner
specified in the following paragraph or as otherwise permitted by
law.
As long as the agreement contemplated herein remains in effect, the
Subadviser will at all times have an authorized agent in the
Commonwealth of Massachusetts upon whom process may be served in any
legal action or proceeding in a state or U.S. federal court sitting
in the Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this proposal or the
agreement contemplated herein. The Subadviser hereby appoints CT
Corporation System as its agent for such purpose, and covenants and
agrees that service of process in any such legal action or
proceeding may be made upon it at the office of such agent at 2
Oliver Street, Boston, MA 02019 (or at such other address in the
Commonwealth of Massachusetts, as said agent may designate by
written notice to the Subadviser and the Manager). The Subadviser
hereby consents to the process being served in any suit, action or
proceeding of the nature referred to in the preceding paragraph by
service upon such agent together with the mailing of a copy thereof
by registered or certified mail, postage prepaid, return receipt
requested, to the address of the Subadviser set forth in Section 16
below or to any other address of which the Subadviser shall have
given written notice to the Manager. The Subadviser irrevocably
waives, to the fullest extent permitted by law, all claim of error
by reason of any such service (but does not waive any right to
assert lack of subject matter jurisdiction) and agrees that such
service (i) shall be deemed in every respect effective service of
process upon the Subadviser in any suit, action or proceeding and
(ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to the
Subadviser.
Nothing in this Section 15 shall affect the right of the Manager to
serve process in any manner permitted by law or limit the right of
the Manager to bring proceedings against the Subadviser in the
courts of any jurisdiction or jurisdictions.
16. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered or
sent by pre-paid first class letter post to the following addresses
or to such other address as the relevant addressee shall hereafter
notify for such purpose to the others by notice in writing and shall
be deemed to have been given at the time of delivery.
If to the Manager: IVY MANAGEMENT, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432, U.S.A.
Attention: C. William Ferris
If to the Trust: IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432, U.S.A.
Attention: C. William Ferris
If to the Subadviser: PETER CUNDILL & ASSOCIATES INC.
PO Box 50133
Santa Barbara, CA 93108 USA
Attn: Brian L. McDermott
With a copy to:
Cundill Investment Research Ltd.
1200 1100 Melville Street
Vancouver, British Columbia V6E 4A6
Attn: Mr. Andrew C. Parkinson
17. Limitation of Liability of the Trust, its Trustees, and
Shareholders. It is understood and expressly stipulated that none of
the trustees, officers, agents, or shareholders of any series of the
Trust shall be personally liable hereunder. It is understood and
acknowledged that all persons dealing with any series of the Trust
must look solely to the property of such series for the enforcement
of any claims against that series as neither the trustees, officers,
agents or shareholders assume any personal liability for obligations
entered into on behalf of any series of the Trust. No series of the
Trust shall be liable for the obligations or liabilities of any
other series of the Trust.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
Anything herein to the contrary notwithstanding, this Agreement
shall not be construed to require, or to impose any duty upon either
of the parties, to do anything in violation of any applicable laws
or regulations.
19. Severability. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all
such counterparts shall constitute a single instrument.
IN WITNESS WHEREOF, Ivy Management, Inc. and Peter Cundill &
Associates, Inc. have each caused this instrument to be signed in duplicate on
its behalf by the officer designated below thereunto duly authorized. IVY
MANAGEMENT, INC.
By: /s/ C. WILLIAM FERRIS
Title: Senior Vice President
PETER CUNDILL & ASSOCIATES, INC.
By: /s/ F. PETER CUNDILL
Title: President
SCHEDULE A
TO SUBADVISORY AGREEMENT BETWEEN
IVY MANAGEMENT, INC. AND PETER CUNDILL & ASSOCIATES, INC.
DATED MARCH 1 , 2000
-----------------------------------
Funds:
Ivy Cundill Value Fund - 100% of Fund's net assets
<PAGE>
SCHEDULE B
TO SUBADVISORY AGREEMENT BETWEEN
IVY MANAGEMENT, INC. AND PETER CUNDILL & ASSOCIATES, INC.
DATED MARCH 1 , 2000
-----------------------------------
Fee schedule:
- ----------------------------------------- ---------------------------------
Fund Net Assets (U.S. $millions) Advisory Fee Annual Rate
All Net Assets 0.50%
Fees are subject to renegotiation based on assets under management.
- ----------------------------------------- ---------------------------------
Exhibit e(17)
IVY FUND
ADDENDUM TO
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
Ivy Cundill Value Fund
Ivy Next Wave Internet Fund
Class A, Class B, Class C, Class I and Advisor Class Shares
AGREEMENT made as of the 14th day of April, 2000, by and between Ivy
Fund (the "Trust") and Ivy Mackenzie Distributors, Inc. ("IMDI")(formerly
"Mackenzie Ivy Funds Distribution, Inc.").
WHEREAS, the Trust is registered as an open-end investment company
under the Investment Company Act of 1940, as amended, and consists of one or
more separate investment portfolios, as may be designated from time to time; and
WHEREAS, IMDI serves as the Trust's distributor pursuant to an Amended
and Restated Distribution Agreement dated March 16, 1999 (the "Agreement"); and
WHEREAS, the Trustees of the Trust have duly approved an amendment to
the Agreement to include the Class A, Class B, Class C, Class I and Advisor
Class shares (the "Shares") of Ivy Cundill Value Fund and Ivy Next Wave Internet
Fund (the "Funds"), respectively.
WHEREAS, the Shares were established and designated by the Board of
Trustees of the Trust by written consent made effective as of the date that the
Registration Statement for the Funds was filed with the Securities and Exchange
Commission ("SEC") in accordance with Rule 485(a)(2) under the Securities Act of
1933 (the "Securities Act").
NOW THEREFORE, the Trust and IMDI hereby agree as follows:
Effective as of the date the Registration Statement pertaining
to Ivy Cundill Value Fund and Ivy Next Wave Internet Fund
filed with the SEC pursuant to Rule 485(a)(2) under the
Securities Act first becomes effective, the Agreement shall
relate in all respects to the Shares, in addition to the
classes of shares of the Funds and any other series of the
Trust specifically identified in Paragraph 1 of the Agreement
and any other Addenda thereto.
IN WITNESS WHEREOF, the Trust and IMDI have adopted this Addendum as of
the date first set forth above.
IVY FUND
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
IVY MACKENZIE DISTRIBUTORS, INC.
By: /s/ KEITH J. CARLSON
Keith J. Carlson, President
Exhibit h(55)
IVY FUND
ADDENDUM TO
TRANSFER AGENCY AND SHAREHOLDER SERVICES AGREEMENT
The Transfer Agency and Shareholder Services Agreement, made as of the
1st day of January, 1992 between Ivy Fund and Ivy Management, Inc. ("IMI"), the
duties of IMI thereunder of which were assigned on October 1, 1993 to Ivy
Mackenzie Services Corp. ("IMSC")(formerly "Mackenzie Ivy Investor Services
Corp."), is hereby revised as set forth below in this Addendum.
Schedule A of the Agreement is revised in its entirety to read as follows:
SCHEDULE A
Ivy Fees:
The transfer agency and shareholder service fees are based on an annual
per account fee. These fees are payable on a monthly basis at the rate of 1/12
of the annual fee and are charged with respect to all open accounts.
A. Per Account Fees
Classes Class Advisor
Fund Name A, B, C I Class
Ivy Asia Pacific Fund $20.00 N/A $20.00
Ivy Bond Fund 20.75 10.25 20.75
Ivy China Region Fund 20.00 N/A 20.00
Ivy Cundill Value Fund 20.00 10.25 20.00
Ivy Developing Nations Fund 20.00 N/A 20.00
Ivy European Opportunities Fund 20.00 10.25 20.00
Ivy Global Fund 20.00 N/A 20.00
Ivy Global Natural Resources Fund 20.00 N/A 20.00
Ivy Global Science & Technology Fund 20.00 10.25 20.00
Ivy Growth Fund 20.00 N/A 20.00
Ivy Growth with Income Fund 20.00 N/A 20.00
Ivy International Fund 20.00 10.25 N/A
Ivy International Fund II 20.00 10.25 20.00
Ivy International Small Companies Fund 20.00 10.25 20.00
Ivy International Strategic Bond Fund 20.00 10.25 20.00
Ivy Money Market Fund 22.00 N/A N/A
Ivy Next Wave Internet Fund 20.00 10.25 20.00
Ivy Pan-Europe Fund 20.00 N/A 20.00
Ivy South America Fund 20.00 N/A 20.00
Ivy US Blue Chip Fund 20.00 10.25 20.00
Ivy US Emerging Growth Fund 20.00 N/A 20.00
In addition, in accordance with an agreement between IMSC and First
Data Investor Services Group, Inc. (formerly The Shareholder Services Group,
Inc.), each Fund will pay a fee of $4.58 for each account that is closed, which
fee may be increased from time to time in accordance with the terms of that
agreement.
B. Special Services
Fees for activities of a non-recurring nature, such as preparation of
special reports, portfolio consolidations, or reorganization, and extraordinary
shipments will be subject to negotiation.
This Addendum shall take effect as of the date that the Registration
Statement pertaining to Ivy Cundill Value Fund and Ivy Next Wave Internet Fund,
filed with the Securities and Exchange Commission pursuant to Rule 485(a)(2)
under the Securities Act of 1933, first becomes effective.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the 14th day of April, 2000.
IVY FUND
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
IVY MACKENZIE SERVICES CORP.
By: /s/ C. WILLIAM FERRIS
C. William Ferris, President
Exhibit h(56)
IVY FUND
FUND ACCOUNTING SERVICES AGREEMENT SUPPLEMENT
Ivy Cundill Value Fund
Ivy Next Wave Internet Fund
AGREEMENT made as of the 14th day of April, 2000, by and between Ivy
Fund (the "Trust") and Mackenzie Investment Management Inc. (the "Agent").
WHEREAS, the Trust is an open-end investment company, organized as a
Massachusetts business trust, and consists of such separate investment
portfolios as have been or may be established and designated by the Trustees of
the Trust from time to time;
WHEREAS, a separate class of shares of the Trust is offered to
investors with respect to each investment portfolio;
WHEREAS, the Trust has adopted a Master Fund Accounting Services
Agreement dated January 25, 1993 (the "Master Agreement"), pursuant to which the
Trust has appointed the Agent to provide the fund accounting services specified
in the Master Agreement; and
WHEREAS, Ivy Cundill Value Fund and Ivy Next Wave Internet Fund (each,
a "Fund" and collectively the "Funds") are separate investment portfolios of the
Trust.
NOW, THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided for in the Master Agreement, the Trust hereby adopts
the Master Agreement with respect to the Funds, and the Manager hereby
acknowledges that the Master Agreement shall pertain to the Funds, the terms and
conditions of such Master Agreement being hereby incorporated herein by
reference.
2. The term "Portfolio" as used in the Master Agreement shall, for
purposes of this Supplement, pertain to each Fund.
3. As provided in the Master Agreement and subject to further
conditions as set forth therein, each Fund shall pay the Agent a monthly fee
based upon the rate(s) set forth in the Fee Schedule attached hereto as Annex 1.
4. This Supplement and the Master Agreement (together, the
"Agreement") shall become effective with respect to the Fund as of the date
specified above, and unless sooner terminated as hereinafter provided, the
Agreement shall remain in effect with respect to a Fund for a period of more
than one (1) year from such date only so long as the continuance is specifically
approved at least annually by the Trust's Board of Trustees, including the vote
or written consent of a majority of the Trust's Independent Trustees (as defined
in the Investment Company Act of 1940, as amended). This Agreement may be
terminated with respect to a Fund, without payment of any penalty, by that Fund
upon at least ninety (90) days' prior written notice to the Agent or by the
Agent upon at least ninety (90) days' prior written notice to that Fund;
provided, that in the case of termination by a Fund, such action shall have been
authorized by the Trust's Board of Trustees, including the vote or written
consent of a majority of the Trust's Independent Trustees.
IVY FUND, on behalf of
Ivy Cundill Value Fund and
Ivy Next Wave Internet Fund
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
MACKENZIE INVESTMENT MANAGEMENT INC.
By: /s/ KEITH J. CARLSON
Keith J. Carlson, President
<PAGE>
ANNEX 1
FUND ACCOUNTING SERVICES AGREEMENT
FEE SCHEDULE
Based upon assets under management (in millions):
$0-$10 >$10-$40 >$40-$75 Over $75
Ivy Cundill Value Fund $1,250 $2,500 $5,000 $6,500
Ivy Next Wave Internet Fund $1,250 $2,500 $5,000 $6,500
Exhibit h(57)
IVY FUND
ADMINISTRATIVE SERVICES AGREEMENT SUPPLEMENT
Ivy Cundill Value Fund
Ivy Next Wave Internet Fund
AGREEMENT made as of the 14th day of April, 2000 by and between Ivy Fund
(the "Trust") and Mackenzie Investment Management Inc. ("MIMI").
WHEREAS, the Trust is an open-end investment company, organized as a
Massachusetts business trust, and consists of such separate investment
portfolios as have been or may be established and designated by the Trustees of
the Trust from time to time;
WHEREAS, a separate series of shares of the Trust is offered to
investors with respect to each investment portfolio;
WHEREAS, the Trust has adopted a Master Administrative Services
Agreement dated September 1, 1992 (the "Master Services Agreement"), pursuant to
which the Trust has appointed MIMI to provide the administrative services
specified in the Master Services Agreement; and
WHEREAS, Ivy Cundill Value Fund and Ivy Next Wave Internet Fund ( each,
a "Fund" and collectively the "Funds") are separate investment portfolios of the
Trust.
NOW, THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided for in the Master Services Agreement, the Trust hereby
adopts the Master Services Agreement with respect to the Funds, and MIMI hereby
acknowledges that the Master Services Agreement shall pertain to the Funds, the
terms and conditions of such Master Services Agreement being incorporated herein
by reference.
2. The term "Fund" as used in the Master Services Agreement shall, for
purposes of this Supplement, pertain to each Fund.
3. As provided in the Master Services Agreement and subject to further
conditions as set forth therein, each Fund shall pay MIMI a monthly fee on the
first business day of each month based upon the average daily value (as
determined on each business day at the time set forth in each Fund's Prospectus
for determining net asset value per share) of the net assets of that Fund during
the preceding month at the annual rate of (i) 0.10% with respect to that Fund's
Class A, Class B, Class C and Advisor Class shares, and (ii) 0.01% with respect
to that Fund's Class I shares.
4. This Supplement and the Master Services Agreement (together, the
"Agreement") shall become effective with respect to each of the Funds as of the
date specified above, and unless sooner terminated as hereinafter provided, the
Agreement shall remain in effect for a period of two years from that date.
Thereafter, the Agreement shall continue in effect with respect to each Fund
from year to year, provided such continuance with respect to each Fund is
approved at least annually by the Trust's Board of Trustees, including the vote
or written consent of a majority of the Trust's Independent Trustees (as defined
in the Investment Company Act of 1940, as amended). This Agreement may be
terminated with respect to a Fund at any time, without payment of any penalty,
by MIMI upon at least sixty (60) days' prior written notice to that Fund, or by
a Fund upon at least sixty (60) days' written notice to MIMI; provided, that in
case of termination by a Fund, such action shall have been authorized by the
Trust's Board of Trustees, including the vote or written consent of a majority
of the Trust's Independent Trustees.
IVY FUND, on behalf of
Ivy Cundill Value Fund and
Ivy Next Wave Internet Fund
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
MACKENZIE INVESTMENT MANAGEMENT INC.
By: /s/ KEITH J. CARLSON
Keith J. Carlson, President
DECHERT PRICE & RHOADS
TEN POST OFFICE SQUARE -- SOUTH
SUITE 1230
BOSTON, MASSACHUSETTS 02109-4603
April 17, 2000
Ivy Fund
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Dear Sirs:
As counsel for Ivy Fund (the "Trust"), we are familiar with the
registration of the Trust under the Investment Company Act of 1940, as amended
(the "1940 Act") (File No. 811-1028), and the Prospectuses contained in
Post-Effective Amendment No. 114 to the Trust's registration statement relating
to the shares of beneficial interest of Ivy Cundill Value Fund and Ivy Next Wave
Internet Fund (the "Shares") being filed under the Securities Act of 1933, as
amended (File No. 2-17613) ("Post-Effective Amendment No. 114"). We have also
examined such other records of the Trust, agreements, documents and instruments
as we deemed appropriate.
Based upon the foregoing, it is our opinion that the Shares have
been duly authorized and, when issued and sold at the public offering price
contemplated by the Prospectuses for the Funds and delivered by the Trust
against receipt of the net asset value of the Shares, will be issued as fully
paid and nonassessable shares of the Trust.
We consent to the filing of this opinion on behalf of the Trust with
the Securities and Exchange Commission in connection with the filing of
Post-Effective Amendment No. 114.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
Exhibit (j)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees of Ivy Fund
We hereby consent to the use in this Post-Effective Amendment No. 114 to the
registration statement on Form N-1A of Ivy Fund (File No. 2-17613) (the
"Registration Statement") of our report dated March 15, 2000, relating to the
Statement of Assets and Liabilities at March 14, 2000 of the Ivy Cundill Value
Fund and the Ivy Next Wave Internet Fund, which appear in such Registration
Statement. We also consent to the reference to us under the heading "Auditors"
in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
April 17, 2000
Exhibit m(42)
SUPPLEMENT TO
MASTER AMENDED AND RESTATED DISTRIBUTION PLAN
FOR IVY FUND CLASS A SHARES
WHEREAS, Ivy Fund is registered as an open-end investment company under
the Investment Company Act of 1940 (the "1940 Act") and consists of one or more
separate investment portfolios as may be established and designated from time to
time (each, a "Portfolio");
WHEREAS, the Board of Trustees of Ivy Fund has adopted a Master Amended
and Restated Distribution Plan dated December 3, 1999 (the "Plan"), in
accordance with the requirements of the 1940 Act, and determined that there is a
reasonable likelihood that the Plan will benefit Ivy Fund and its shareholders;
and
WHEREAS, the Board of Trustees of Ivy Fund, pursuant to Section 1 of
the Plan, desires to supplement the Plan so that it pertains to the Class A
Shares of two new Portfolios of Ivy Fund referred to as Ivy Cundill Value Fund
and Ivy Next Wave Internet Fund.
NOW THEREFORE, the Board of Trustees of Ivy Fund having determined that
the Plan shall pertain to the Class A shares of Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund hereby adopts this Supplement, to be effective as of the
date the Registration Statement pertaining to Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund filed with the Securities and Exchange Commission
pursuant to Rule 485(a)(2) under the Securities Act of 1933 first becomes
effective.
IVY FUND
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
Exhibit m(43)
SUPPLEMENT TO
AMENDED AND RESTATED DISTRIBUTION PLAN
FOR IVY FUND CLASS B SHARES
WHEREAS, Ivy Fund is registered as an open-end investment company under
the Investment Company Act of 1940 (the "1940 Act") and consists of one or more
separate investment portfolios as may be established and designated from time to
time (each, a "Portfolio");
WHEREAS, the Board of Trustees of Ivy Fund has adopted an Amended and
Restated Distribution Plan dated March 16, 1999 (the "Plan"), in accordance with
the requirements of the 1940 Act, and determined that there is a reasonable
likelihood that the Plan will benefit Ivy Fund and its shareholders; and
WHEREAS, the Board of Trustees of Ivy Fund, pursuant to Section 1 of
the Plan, desires to supplement the Plan so that it pertains to the Class B
Shares of two new Portfolios of Ivy Fund referred to as Ivy Cundill Value Fund
and Ivy Next Wave Internet Fund.
NOW THEREFORE, the Board of Trustees of Ivy Fund having determined that
the Plan shall pertain to the Class B shares of Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund hereby adopts this Supplement, to be effective as of the
date the Registration Statement pertaining to Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund filed with the Securities and Exchange Commission
pursuant to Rule 485(a)(2) under the Securities Act of 1933 first becomes
effective.
IVY FUND
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
Exhibit m(44)
SUPPLEMENT TO
DISTRIBUTION PLAN FOR IVY FUND CLASS C SHARES
WHEREAS, Ivy Fund is registered as an open-end investment company under
the Investment Company Act of 1940 (the "1940 Act") and consists of one or more
separate investment portfolios as may be established and designated from time to
time (each, a "Portfolio");
WHEREAS, the Board of Trustees of Ivy Fund has adopted a Plan dated
February 10, 1996 (the "Plan"), in accordance with the requirements of the 1940
Act, and determined that there is a reasonable likelihood that the Plan will
benefit Ivy Fund and its shareholders; and
WHEREAS, the Board of Trustees of Ivy Fund, pursuant to Section 1 of
the Plan, desires to supplement the Plan so that it pertains to the Class C
Shares of a new Portfolio of Ivy Fund referred to as Ivy Cundill Value Fund and
Ivy Next Wave Internet Fund.
NOW THEREFORE, the Board of Trustees of Ivy Fund having determined that
the Plan shall pertain to the Class C shares of Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund hereby adopts this Supplement, to be effective as of the
date the Registration Statement pertaining to Ivy Cundill Value Fund and Ivy
Next Wave Internet Fund filed with the Securities and Exchange Commission
pursuant to Rule 485(a)(2) under the Securities Act of 1933 first becomes
effective.
IVY FUND
By: /s/ JAMES W. BROADFOOT
James W. Broadfoot, President
Exhibit n(11)
IVY FUND
PLAN PURSUANT TO RULE 18F-3
UNDER THE
INVESTMENT COMPANY ACT OF 1940
(As Amended and Restated on April 14, 2000)
I. INTRODUCTION
In accordance with Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), this Plan describes the multi-class structure that
will apply to certain series of Ivy Fund (each a "Fund" and, collectively, the
"Funds"), including the separate class arrangements for the service and
distribution of shares, the method for allocating the expenses and income of
each Fund among its classes, and any related exchange privileges and conversion
features that apply to the different classes.
II. THE MULTI-CLASS STRUCTURE
Each of the following Funds is authorized to issue four classes of
shares identified as Class A, Class B, Class C and an Advisor Class: Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy Cundill
Value 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 High Yield Fund, Ivy
International Fund[FN][Ivy International Fund does not have an Advisor Class],
Ivy International Small Companies Fund, Ivy International Fund II, Ivy
International Strategic Bond Fund, Ivy Next Wave Internet Fund, Ivy South
America Fund, Ivy Money Market Fund[FN1][The separation of Ivy Money Market Fund
shares into three separate classes has been authorized as a means of enabling
the Funds' transfer agent to track the contingent deferred sales charge period
that applies to Class B and Class C shares of other Funds that are being
exchanged for shares of Ivy Money Market Fund. In all other relevant respects,
the three classes of Ivy Money Market Fund shares are identical (i.e., having
the same arrangement for shareholder services and the distribution of
securities), and are not subject to any sales load other than in connection with
the redemption of Class B or Class C shares that have been acquired pursuant to
an exchange from another Fund. (See Section III.D.)], Ivy Pan-Europe Fund, Ivy
US Blue Chip Fund and Ivy US Emerging Growth Fund. Ivy Bond Fund, Ivy Cundill
Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology
Fund, Ivy High Yield Fund, Ivy International Fund, Ivy International Fund II,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy Next Wave Internet Fund and Ivy US Blue Chip Fund are also authorized to
issue an additional class of shares identified as Class I.
Shares of each class of a Fund represent an equal pro rata interest in
the underlying assets of that Fund, and generally have identical voting,
dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a) each
class shall have a different designation; (b) each class shall bear certain
class-specific expenses, as described more fully in Section III.C.2., below; (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement; and (d) each class shall
have separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class. Each class
of shares shall also have the distinct features described in Section III, below.
III. CLASS ARRANGEMENTS
A. FRONT-END SALES CHARGES AND CONTINGENT DEFERRED SALES CHARGES
Class A shares shall be offered at net asset value plus a front-end
sales charge. The front-end sales charge shall be in such amount as is disclosed
in each Fund's current prospectus and shall be subject to reductions for larger
purchases and such waivers or reductions as are determined or approved by the
Board of Trustees. Class A shares generally will not be subject to a contingent
deferred sales charge (a "CDSC"), although a CDSC may be imposed in certain
limited cases as disclosed in each Fund's current prospectus or prospectus
supplement.
Class B and Class C shares shall be offered at net asset value without
the imposition of a front-end sales charge. A CDSC in such amount as is
described in each Fund's current prospectus or prospectus supplement shall be
imposed on Class B and Class C shares, subject to such waivers or reductions as
are determined or approved by the Board of Trustees.
Advisor Class and Class I shares are not subject to a front-end sales
charge or a CDSC.
B. RULE 12B-1 PLANS
Each Fund (other than Ivy Money Market Fund) has adopted a service and
distribution plan pursuant to Rule 12b-1 under the 1940 Act (a "12b-1 plan")
under which it pays to Ivy Mackenzie Distributors, Inc. (the "Distributor") an
annual fee based on the average daily net assets value of the Fund's outstanding
Class A, Class B and Class C shares, respectively.[FN2][Advisor Class and Class
I shares are not subject to Rule 12b-1 service or distribution fees.] The
maximum fees currently charged to each Fund under its 12b-1 plan are set forth
in the table below, and are expressed as a percentage of the Fund's average
daily net assets.[FN3][Fees for services in connection with the Rule 12b-1 plans
will be consistent with any applicable restriction imposed by the National
Association of Securities Dealers, Inc.]
The services that the Distributor provides in connection with each Rule
12b-1 plan for which service fees[FN4][Each Fund pays the Distributor at the
annual rate of up to 0.25% of the average daily net asset value attributable to
its Class A, Class B and Class C shares, respectively. Ivy Canada Fund pays an
additional service-related fee of 0.15% of the average daily net asset value
attributable to its Class A shares. In addition, each Fund (other than Ivy
Canada Fund) pays the Distributor a fee for other distribution services at the
annual rate of 0.75% of the Fund's average daily net assets attributable to its
Class B and Class C shares. Ivy Canada Fund pays the Distributor an additional
amount for other distribution services at the annual rate of 0.60% of average
daily net assets attributable to its Class B and Class C shares.] are paid
include, among other things, advising clients or customers regarding the
purchase, sale or retention of a Fund's Class A, Class B or Class C shares,
answering routine inquiries concerning the Fund, assisting shareholders in
changing options or enrolling in specific plans and providing shareholders with
information regarding the Fund and related developments.
The other distribution services provided by the Distributor in
connection with each Fund's Rule 12b-1 plan include any activities primarily
intended to result in the sale of the Fund's Class B and Class C shares. For
such distribution services, the Distributor is paid for, among other things,
compensation to broker-dealers and other entities that have entered into
agreements with the Distributor; bonuses and other incentives paid to
broker-dealers or such other entities; compensation to and expenses of employees
of the Distributor who engage in or support distribution of a Fund's Class B or
Class C shares; telephone expenses; interest expense (only to the extent not
prohibited by a regulation or order of the SEC); printing of prospectuses and
reports for other than existing shareholders; and preparation, printing and
distribution of sales literature and advertising materials.
<PAGE>
RULE 12b-1 FEES
CLASS B AND
CLASS A CLASS A CLASS C SHARES
SHARES SHARES (SERVICE AND
(SERVICE (DISTRIBUTION DISTRIBUTION
FUND NAME FEE) FEES) FEES)
Ivy Asia Pacific Fund 0.25% 0.00% 1.00%
Ivy Bond Fund 0.25% 0.00% 1.00%
Ivy Canada Fund 0.25% 0.15% 1.00%
Ivy China Region Fund 0.25% 0.00% 1.00%
Ivy Cundill Value Fund 0.25% 0.00% 1.00%
Ivy Developing Nations Fund 0.25% 0.00% 1.00%
Ivy European Opportunities Fund 0.25% 0.00% 1.00%
Ivy Global Fund 0.25% 0.00% 1.00%
Ivy Global Natural Resources Fund 0.25% 0.00% 1.00%
Ivy Global Science &
Technology Fund 0.25% 0.00% 1.00%
Ivy Growth Fund 0.25% 0.00% 1.00%
Ivy Growth with Income Fund 0.25% 0.00% 1.00%
Ivy High Yield Fund 0.25% 0.00% 1.00%
Ivy International Fund 0.25% 0.00% 1.00%
Ivy International Fund II 0.25% 0.00% 1.00%
Ivy International
Small Companies Fund 0.25% 0.00% 1.00%
Ivy International
Strategic Bond Fund 0.25% 0.00% 1.00%
Ivy South America Fund 0.25% 0.00% 1.00%
Ivy Next Wave Internet Fund 0.25% 0.00% 1.00%
Ivy Money Market Fund* 0.00% 0.00% 0.00%
Ivy Pan-Europe Fund 0.25% 0.00% 1.00%
Ivy US Blue Chip Fund 0.25% 0.00% 1.00%
Ivy US Emerging Growth Fund 0.25% 0.00% 1.00%
* See footnote 1.
<PAGE>
C. ALLOCATION OF EXPENSES AND INCOME
1. "TRUST" AND "FUND" EXPENSES
The gross income, realized and unrealized capital gains and losses and
expenses (other than "Class Expenses," as defined below) of each Fund shall be
allocated to each class on the basis of its net asset value relative to the net
asset value of the Fund. Expenses so allocated include expenses of Ivy Fund that
are not attributable to a particular Fund or class of a Fund ("Trust Expenses")
and expenses of a Fund not attributable to a particular class of the Fund ("Fund
Expenses"). Trust Expenses include, but are not limited to, Trustees' fees and
expenses; insurance costs; certain legal fees; expenses related to shareholder
reports; and printing expenses. Fund Expenses include, but are not limited to,
certain registration fees (i.e., state registration fees imposed on a Fund-wide
basis and SEC registration fees); custodial fees; transfer agent fees; advisory
fees; fees related to the preparation of separate documents of a particular
Fund, such as a separate prospectus; and other expenses relating to the
management of the Fund's assets.
2. "CLASS" EXPENSES
The types of expenses attributable to a particular class ("Class
Expenses") include: (a) payments pursuant to the Rule 12b-1 plan for that
class[FN5][Advisor Class and Class I shares bear no distribution or service
fees.]; (b) transfer agent fees attributable to a particular class; (c) printing
and postage expenses related to preparing and distributing shareholder reports,
prospectuses and proxy materials; (d) registration fees (other than those set
forth in Section C.1. above); (e) the expense of administrative personnel and
services as required to support the shareholders of a particular
class[FN6][Class I shares bear lower administrative services fees relative to
these Funds' other classes of shares (i.e., Class I shares of the Funds pay a
monthly administrative services fee based upon each Fund's average daily net
assets at the annual rate of only 0.01%, while Class A, Class B, Class C and
Advisor Class shares pay a fee at the annual rate of 0.10%).]; (f) litigation or
other legal expenses relating solely to a particular class; (g) Trustees' fees
incurred as a result of issues relating to a particular class; and (h) the
expense of holding meetings solely for shareholders of a particular class.
Expenses described in subpart (a) of this paragraph must be allocated to the
class for which they are incurred. All other expenses described in this
paragraph may (but need not) be allocated as Class Expenses, but only if Ivy
Fund's Board of Trustees determines, or Ivy Fund's President and
Secretary/Treasurer have determined, subject to ratification by the Board of
Trustees, that the allocation of such expenses by class is consistent with
applicable legal principles under the 1940 Act and the Internal Revenue Code of
1986, as amended.
In the event that a particular expense is no longer reasonably
allocable by class or to a particular class, it shall be treated as a Trust
Expense or Fund Expense, and in the event a Trust Expense or Fund Expense
becomes reasonably allocable as a Class Expense, it shall be so allocated,
subject to compliance with Rule 18f-3 and to approval or ratification by the
Board of Trustees.
<PAGE>
3. WAIVERS OR REIMBURSEMENTS OF EXPENSES
Expenses may be waived or reimbursed by any adviser to Ivy Fund, by Ivy
Fund's underwriter or any other provider of services to Ivy Fund without the
prior approval of Ivy Fund's Board of Trustees.
D. EXCHANGE PRIVILEGES
Shareholders of each Fund have exchange privileges with the other
Funds. [FN7][Other exchange privileges, not described herein, exist under
certain other circumstances, as described in each Fund's current prospectus or
prospectus supplement.]
1. CLASS A:
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Fund
(or for shares of another Fund that currently offers only a single class of
shares) ("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. Incremental sales
charges are waived for outstanding Class A shares that have been invested for 12
months or longer.
CONTINGENT DEFERRED SALES CHARGE SHARES. Class A shareholders may
exchange their Class A shares subject to a contingent deferred sales charge
("CDSC"), as described in the Prospectus ("outstanding Class A shares"), for
Class A shares of another Fund (or for shares of another Fund that currently
offers only a single class of shares) ("new Class A shares") on the basis of the
relative net asset value per Class A share, without the payment of a 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 the Fund's CDSC schedule (or period) following an exchange,
unless the CDSC schedule that applies to the new Class A shares is higher (or
such period is longer) than the CDSC schedule (or period), if any, applicable to
the outstanding Class A shares, in which case the schedule (or period) of the
Fund into which the exchange is made shall apply.
2. CLASS B AND CLASS C:
Shareholders may exchange their Class B or Class C shares ("outstanding
Class B shares" or "outstanding Class C shares," respectively) for the same
class of shares of another Fund ("new Class B shares" or "new Class C shares,"
respectively) on the basis of the net asset value per Class B or Class C share,
as the case may be, without the payment of any CDSC that would otherwise be due
upon the redemption of the outstanding Class B or Class C shares. Class B and
Class C shareholders of a Fund exercising the exchange privilege will continue
to be subject to the Fund's CDSC schedule (or period) following an exchange,
unless, in the case of Class B shareholders, the CDSC schedule that applies to
the new Class B shares is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the outstanding Class B shares, in which case
the schedule (or period) of the Fund into which the exchange is made shall
apply.
3. ADVISOR CLASS AND CLASS I:
Advisor Class and Class I shareholders may exchange their outstanding
Advisor Class or Class I shares for shares of the same class of another Fund on
the basis of the net asset value per Advisor Class or Class I share, as the case
may be.
4. GENERAL:
Shares resulting from the reinvestment of dividends and other
distributions will not be charged an initial sales charge or CDSC when exchanged
into another Fund.
With respect to Fund shares subject to a CDSC, if less than all of an
investment is exchanged out of the Fund, the shares exchanged will reflect, pro
rata, the cost, capital appreciation and/or reinvestment of distributions of the
original investment as well as the original purchase date, for purposes of
calculating any CDSC for future redemptions of the exchanged shares.
E. CONVERSION FEATURE
Class B shares of a Fund convert automatically to Class A shares of the
Fund as of the close of business on the first business day after the last day of
the calendar quarter in which the eighth anniversary of the purchase date of the
Class B shares occurs. The conversion will be based on the relative net asset
values per share of the two classes, without the imposition of any sales load,
fee or other charge. For purposes of calculating the eight year holding period,
the "purchase date" shall mean the date on which the Class B shares were
initially purchased, regardless of whether the Class B shares that are subject
to the conversion were obtained through an exchange (or series of exchanges)
from a different Fund. For purposes of conversion of Class B shares, Class B
shares acquired 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.
IV. BOARD REVIEW
A. INITIAL APPROVAL
The Board of Trustees of Ivy Fund, including a majority of the Trustees
who are not interested persons of Ivy Fund, as defined under the 1940 Act (the
"Independent Trustees"), at a meeting held on December 1-2, 1995, initially
approved this Plan based on a determination that the Plan, including the expense
allocation, is in the best interests of each class of shares of each Fund
individually and Ivy Fund as a whole.[FN8][The Plan, as initially approved,
pertained only to the Class A and Class B shares of the Funds, and the Class I
shares of Ivy Bond Fund and Ivy International Fund. The Plan was amended and
restated on April 30, 1996 to reflect the establishment and designation of Class
C shares of the Funds. The Plan was further amended and restated on June 8, 1996
to reflect the establishment and designation of Ivy Global Science and
Technology Fund. The Plan was further amended and restated on December 7, 1996
to reflect the establishment and designation of Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy International Small Companies Fund. The Plan
was further amended and restated on February 8, 1997 to reflect the
establishment and designation of Ivy Pan-Europe Fund. The Plan was further
amended and restated on April 30, 1997 to reflect the establishment and
designation of Ivy International Fund II. The Plan was further amended and
restated on December 6, 1997 to reflect the establishment and designation of the
Fund's Advisor Class of shares. The Plan was further amended and restated on
February 7, 1998 to reflect the redesignation of Ivy International Bond Fund as
Ivy High Yield Fund. The Plan was further amended and restated on September 19,
1998 to reflect the redesignation of Ivy US Blue Chip Fund. The Plan was further
amended and restated on February 6, 1999 to reflect the establishment and
designation of Ivy European Opportunities Fund and Ivy International Strategic
Bond Fund. The Plan was further amended and restated on February 4, 2000 to
reflect the establishment and designation of Ivy Cundill Value Fund. The Plan
was further amended and restated as of the date set forth on the first page
hereof to reflect the establishment and designation of Ivy Next Wave Internet
Fund.
B. APPROVAL OF AMENDMENTS
Before any material amendments to this Plan, Ivy Fund's Board of
Trustees, including a majority of the Independent Trustees, must find that the
Plan, as proposed to be amended (including any proposed amendments to the method
of allocating Class and/or Fund Expenses), is in the best interests of each
class of shares of each Fund individually and Ivy Fund as a whole. In
considering whether to approve any proposed amendment(s) to the Plan, the
Trustees of Ivy Fund shall request and evaluate such information as they
consider reasonably necessary to evaluate the proposed amendment(s) to the Plan.
Such information shall address the issue of whether any waivers or
reimbursements of advisory or administrative fees could be considered a
cross-subsidization of one class by another, and other potential conflicts of
interest between classes.
C. PERIODIC REVIEW
The Board of Trustees of Ivy Fund shall review the Plan as frequently
as it deems necessary, consistent with applicable legal requirements.
V. EFFECTIVE DATE
The Plan first became effective as of January 1, 1996.
