<PAGE> 1
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
IVY ASIA PACIFIC FUND,
A SERIES OF
IVY FUND
VIA MIZNER FINANCIAL PLAZA
700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
October 10, 2000
Dear Shareholder:
A special meeting of shareholders of Ivy Asia Pacific Fund ("IAPF"), a
series of Ivy Fund (the "Trust"), has been called for November 21, 2000 for the
purpose of considering a proposal for combining the assets of IAPF with the
assets of Ivy Pacific Opportunities Fund ("IPOF"), a series of the Trust that
has investment objectives and policies that are similar to those of IAPF. The
proposed transaction was reviewed and unanimously endorsed by the Board of
Trustees of the Trust, on behalf of IAPF, as in the best interests of IAPF and
its shareholders.
As a result of the proposed transaction, IAPF would be combined with IPOF
and you would become a shareholder of IPOF, receiving shares of IPOF having an
aggregate net asset value equal to the aggregate net asset value of your
investment in IAPF. Specifically, current Class A, Class B, Class C and Advisor
Class shareholders of IAPF will receive Class A, Class B, Class C and Advisor
Class shares, respectively, of IPOF. WE STRONGLY URGE YOU TO COMPLETE, SIGN,
DATE AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE PAID ENVELOPE AS SOON
AS POSSIBLE TO ENSURE A QUORUM AT THE SPECIAL MEETING.
No sales charge will be imposed in connection with the transaction, and the
closing of the transaction will be conditioned upon receiving an opinion of
counsel to the effect that the transaction will qualify as a tax-free
reorganization for Federal income tax purposes.
Detailed information about the proposed transaction and the reasons
supporting it are contained in the enclosed materials. Please exercise your
right to vote by completing, dating and signing the enclosed proxy card. A
self-addressed, postage-paid envelope is enclosed for your convenience. It is
very important that you vote and that your voting instructions be received no
later than November 20, 2000.
NOTE: You may receive more than one proxy package if you hold shares of
IAPF in more than one account. You must return one proxy card for each account
that your hold. We have provided postage-paid return envelopes for your proxy
card(s).
Sincerely,
/s/ Keith J. Carlson
Keith J. Carlson
Chairman
Ivy Fund
<PAGE> 2
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS OF
IVY ASIA PACIFIC FUND
A SERIES OF
IVY FUND
TO BE HELD ON NOVEMBER 21, 2000
To the Shareholders of
Ivy Asia Pacific Fund,
a series of Ivy Fund
Notice is hereby given that a Special Meeting of Shareholders of Ivy Asia
Pacific Fund ("IAPF"), a series of Ivy Fund (the "Trust"), a Massachusetts
business trust, will be held at the offices of Mackenzie Investment Management
Inc., Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida
33432, on November 21, 2000 at 10:00 a.m., Eastern time, for the following
purposes:
1. To approve an Agreement and Plan of Reorganization providing for
(a) the transfer of all or substantially all of the assets of IAPF
to Ivy Pacific Opportunities Fund ("IPOF"), a separate series of
the Trust, in exchange for IPOF Class A, Class B, Class C and
Advisor Class shares, and the distribution of such IPOF shares to
Class A, Class B, Class C and Advisor Class shareholders,
respectively, of IAPF, in complete liquidation thereof, and (b) the
subsequent termination of IAPF; and
2. To transact such other business as may properly come before the
meeting, or any adjournment thereof.
The Board of Trustees of the Trust has fixed the close of business on
September 28, 2000 as the record date for determining shareholders entitled to
notice of and to vote at the meeting.
By order of the Board of Trustees,
/s/ C. William Ferris
C. William Ferris
Secretary
October 10, 2000
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED
TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
SYNOPSIS.................................................... 2
The Reorganization........................................ 2
The Funds................................................. 3
Fees and Expenses......................................... 4
Purchase, Exchange, Redemption and Dividend Information... 6
Performance Information................................... 9
Financial Highlights...................................... 10
RISK CONSIDERATIONS......................................... 12
INFORMATION ABOUT THE REORGANIZATION........................ 13
Description of the Plan................................... 13
Reasons for the Reorganization............................ 13
Description of the Securities to be Issued................ 14
Shareholder Rights........................................ 14
Federal Income Tax Consequences........................... 14
Liquidation and Termination of IAPF....................... 15
Capitalization............................................ 16
VOTING MATTERS.............................................. 16
ADDITIONAL INFORMATION...................................... 17
Information About the Funds............................... 17
Interests of Certain Persons.............................. 17
Shareholder Proposals for Subsequent Meetings............. 18
Other Business............................................ 18
Proxy Solicitation........................................ 18
</TABLE>
<PAGE> 4
PROXY STATEMENT/PROSPECTUS
OCTOBER 10, 2000
Relating to the acquisition of the assets of
IVY ASIA PACIFIC FUND,
A SEPARATE SERIES OF
IVY FUND
BY AND IN EXCHANGE FOR
CLASS A, CLASS B, CLASS C AND ADVISOR CLASS SHARES OF
IVY PACIFIC OPPORTUNITIES FUND,
A SEPARATE SERIES OF
IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
(800) 456-5111
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of Ivy
Asia Pacific Fund ("IAPF"), a separate series of Ivy Fund (the "Trust"), in
connection with a proposed reorganization (the "Reorganization") in which all or
substantially all of the assets of IAPF would be acquired by Ivy Pacific
Opportunities Fund ("IPOF"), a separate series of the Trust, in exchange solely
for Class A, Class B, Class C and Advisor Class voting shares of beneficial
interest of IPOF. More specifically, as a result of the Reorganization each
shareholder of IAPF would receive that number of full and fractional Class A,
Class B, Class C and/or Advisor Class shares of IPOF having an aggregate net
asset value equal to the aggregate net asset value of the shareholder's Class A,
Class B, Class C and/or Advisor Class shares, respectively, of IAPF held as of
the close of business on the business day preceding the closing of the
Reorganization (the "Valuation Date"). The IPOF shares received by IAPF in
connection with the Reorganization would be distributed to IAPF shareholders in
complete liquidation of IAPF. IAPF would then be terminated as a series of the
Trust. Shareholders of IAPF are being asked to vote on an Agreement and Plan of
Reorganization (the "Plan") pursuant to which the proposed transactions, as
described more fully below, would be consummated. A copy of the Plan is attached
hereto as Exhibit A. This Proxy Statement/Prospectus and related materials are
expected to be mailed to shareholders on or about October 12, 2000.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
IPOF and IAPF (each a "Fund," and together the "Funds") are diversified series
of shares of beneficial interest of the Trust, an open-end management investment
company organized as a Massachusetts business trust and registered under the
Investment Company Act of 1940, as amended (the "1940 Act").(1)
---------------
1 The word "fund" is sometimes used herein to mean an investment company or
series thereof in general, and not IAPF or IPOF in particular. In addition,
any actions cited in this Proxy Statement/Prospectus that are described as
being taken by either IAPF or IPOF are actually taken by the Trust on behalf
of the Fund. The information in this Proxy Statement/Prospectus concerning
IAPF has been provided by (and is included herein in reliance upon) IAPF, and
the information in this Proxy Statement/Prospectus concerning IPOF has been
provided by (and is included herein in reliance upon) IPOF.
1
<PAGE> 5
This Proxy Statement/Prospectus sets forth concisely the information about
IPOF that a prospective investor should know before investing, and should be
retained for future reference. For a more detailed discussion of the investment
objectives, policies, restrictions and risks relating to IPOF and IAPF, see the
combined prospectus for the Funds dated May 1, 2000, as may be supplemented from
time to time (the "Prospectus"), which is provided herewith and incorporated by
reference herein.(2) A Statement of Additional Information dated October 10,
2000 containing additional information about the Reorganization and the parties
thereto has been filed with the Securities and Exchange Commission (the "SEC" or
the "Commission") and is incorporated by reference herein. A copy of the
Statement of Additional Information is available upon request and without charge
by writing to Ivy Mackenzie Distributors, Inc. (the Funds' distributor) at the
address on the previous page or by calling the distributor toll-free at (800)
456-5111.
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete discussions contained elsewhere in this Proxy Statement/Prospectus, the
Prospectus, and the Plan. Shareholders should read this entire Proxy
Statement/Prospectus carefully.
THE REORGANIZATION:
The Plan provided herewith as Exhibit A (which IAPF shareholders are being
asked to approve at the Meeting) provides for the transfer by IAPF of all of its
assets and certain identified liabilities to IPOF in exchange solely for IPOF
Class A, Class B, Class C and Advisor Class shares, which will be distributed to
the Class A, Class B, Class C and Advisor Class shareholders, respectively, of
IAPF. IAPF will then be terminated as a series of the Trust. Each former
shareholder of IAPF will then be a shareholder of IPOF and will hold,
immediately after the closing of the Reorganization (the "Closing"), that number
of full and fractional Class A, Class B, Class C and/or Advisor Class shares of
IPOF having an aggregate net asset value equal to the aggregate net asset value
of the shareholder's Class A, Class B, Class C and/or Advisor Class shares,
respectively, of IAPF held as of the close of business on the Valuation Date.
IAPF shareholders will incur no sales charges in connection with the
Reorganization.
The Board of Trustees of the Trust, including all of the Trustees who are
not "interested persons" of the Trust, as defined in the 1940 Act (the
"Non-Interested Trustees"), unanimously approved the Plan at a meeting held on
August 24, 2000. The Closing is expected to occur on or about November 22, 2000,
or on such other date as the parties may agree to in writing (the "Closing
Date").
---------------
2 Class A, Class B and Class C shares of the Funds are offered through one
Prospectus and Advisor Class shares of the Funds are offered through a
separate Prospectus. Unless otherwise indicated, references in this Proxy
Statement/Prospectus to the "Prospectus" relate to both documents.
2
<PAGE> 6
The Trustees of the Trust believe that the Reorganization provides a means
of combining two separate investment portfolios of the Trust with virtually
identical investment objectives and similar investment policies(3) in an attempt
to achieve enhanced investment performance and distribution capability, as well
as certain economies of scale and attendant cost savings over time to IAPF's
shareholders.(4)
The Trustees believe that IAPF's shareholders will benefit from an
investment in a larger fund that is likely to have the ability to effect
portfolio transactions on more favorable terms and provide Ivy Management, Inc.
(the Funds' investment adviser) with greater investment flexibility, including
the ability to select a larger number of portfolio securities for the combined
Fund (with the attendant ability to spread investment risks among a larger
number of portfolio securities). With certain exceptions, the current expense
ratio for each IPOF class of shares for the six month period ended June 30, 2000
(net of reimbursements from the Funds' manager) is generally lower than its
corresponding IAPF share class, and for the periods ended June 30, 2000 IPOF had
a better performance record (see "Performance Information" below). The larger
aggregate net asset base of the combined Fund could enable it to experience
somewhat greater economies of scale by spreading certain costs of operations
over a larger asset base.
For the foregoing reasons, as more fully described below under "Information
About the Reorganization -- Reasons for the Reorganization", the Trustees of the
Trust, including the Non-Interested Trustees, have unanimously concluded that
(1) the Reorganization is in the best interests of IAPF and its shareholders;
and (2) the interests of the existing shareholders of IAPF will not be diluted
as a result of the Reorganization. Accordingly, the Board of Trustees of the
Trust, on behalf of IAPF, recommends that shareholders approve the Plan. If the
Plan is not approved, IAPF will continue in existence unless or until other
action is taken by the Trustees.
Each Fund will have received an opinion of Dechert Price & Rhoads, counsel
to the Trust and the Funds in connection with the Reorganization, to the effect
that, based upon certain facts, assumptions and representations, the
Reorganization will constitute a tax-free reorganization within the meaning of
section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
If the Reorganization constitutes a tax-free reorganization, no gain or loss
will be recognized by IAPF or its shareholders as a result of the
Reorganization. (See "Information About the Reorganization -- Federal Income Tax
Consequences".)
THE FUNDS:
IPOF and IAPF are diversified series of shares of beneficial interest of
the Trust, an open-end management investment company registered under the 1940
Act. Each Fund offers four classes of shares designated as Class A, Class B,
Class C and Advisor Class, each of which has its own sales charges and
distribution arrangements.(5)
---------------
3 Both Funds invest to a considerable extent in the equity securities of
companies located in Hong Kong and South Korea. IPOF also has significant
investments in China and Taiwan, and IAPF has significant investments in
Taiwan, Singapore and Malaysia. For additional information about the Funds'
investment strategies, please see "The Funds", below.
4 If the Reorganization is consummated, total annual Fund operating expenses for
a given class could be higher or lower because of changes in the average
account size for the class. If the average account size of a class is
decreased, per-account transfer agent fees (expressed as a percentage of the
class's average net assets) would be higher (see, for example, the information
relating to IAPF-Class A in the "Comparison of Annualized Fund Operating
Expenses" table located on page 5). Conversely, if the average account size of
a class is increased, per-account transfer agent fees would be lower.
Mackenzie Investment Management Inc. has agreed to make a payment to IPOF
immediately after the closing of the Reorganization in an amount estimated to
eliminate the impact on affected classes of any increase in expenses during
the 2000 calendar year caused by the Reorganization, calculated as if the
Reorganization took place on June 30, 2000.
5 Advisor Class shares are not subject to any sales charges or
service/distribution (12b-1) fees.
3
<PAGE> 7
The principal investment objective of IPOF is long-term capital growth, and
of IAPF is long-term growth, with current income being a secondary consideration
for each. There can be no assurance that either Fund will achieve its investment
objective. Both Funds are managed by the same team of investment professionals.
Although the investment policies, restrictions and risks associated with
IAPF and IPOF are similar, there are differences between the two Funds. For
example, IAPF invests in a broad number of Asia-Pacific countries which include
mainland China, Hong Kong, Malaysia, the Philippines, Singapore, South Korea,
Taiwan and Thailand. IAPF's major holdings, by country, as of June 30, 2000 were
Hong Kong 32%, South Korea 19% and Taiwan 17%. By contrast, IPOF's investment
policies enable IPOF to spread its investments over a broader range of Pacific
region countries, including Australia, Bangladesh, Brunei and New Zealand in
addition to the countries invested in by IAPF. As of June 30, 2000 the Fund had
nearly 62% of its assets invested in Hong Kong, 13% in South Korea, 13% in
mainland China and 8% in Taiwan. The Funds' investment restrictions are
substantially similar from a portfolio management standpoint.
For a more complete discussion of the investment policies, restrictions and
risks associated with each Fund, see the Prospectus (which is provided
herewith).
FEES AND EXPENSES:
Investment Advisory Fees. Ivy Management, Inc. ("IMI"), located at via
Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432,
provides business management and investment advisory services to the Funds. For
these services, each of the Funds pays a fee to IMI at an annual rate of 1.00%
of the Fund's average net assets. As of June 30, 2000, IAPF had total net assets
of $8,302,474 and IPOF had total net assets of $18,067,717. The total investment
management fees incurred and paid by IAPF and IPOF for the six months ended June
30, 2000 were $43,657 and $94,662, respectively.(6)
Service/Distribution (Rule 12b-1) Fees. The Funds' shares are sold through
Ivy Mackenzie Distributors, Inc. ("IMDI"). The Trust has adopted on behalf of
each Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Funds' Class A, Class B and Class C shares.
Under each distribution plan, IAPF and IPOF pay 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 the Fund's Class A, Class B and Class C shares. 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 Funds and assisting
shareholders in changing options or enrolling in specific plans.
Service fee payments made out of or charged against the assets attributable
to each Fund's Class A, Class B or Class C shares must be in reimbursement for
services rendered for or on behalf of the affected class. The expenses not
reimbursed in any one month may be reimbursed in a subsequent month. The Funds'
Class A distribution plan does not provide for the payment of interest on any
such subsequent reimbursements of distribution expenses.
Under the Funds' Class B and Class C distribution plans, each Fund also
pays IMDI a distribution fee, accrued daily and paid monthly, at the annual rate
of 0.75% of the average net assets attributable to its Class B and Class C
shares. This fee is paid to IMDI as compensation and is not dependent on IMDI's
expenses incurred.
---------------
6 IMI voluntarily limits each Fund's total operating expenses (excluding Rule
12b-1 fees and taxes) to 1.95% of the Fund's average net assets, which may
lower the Fund's expenses and increase its total return. For each of the next
nine years, IMI has contractually agreed to ensure that each Fund's expenses
will not exceed 2.50% of its average net assets. Please refer to the table
entitled "Comparison of Annualized Fund Operations Expenses" below for
information concerning each Fund's recent operating expenses (as a percentage
of average net assets) for its Class A, Class B, Class C and Advisor Class
shares.
4
<PAGE> 8
Comparative Fee Information. The tables and examples below are designed to
assist you in understanding the various costs and expenses that you will bear
directly or indirectly as an investor in the Funds. Unless otherwise noted, the
information is based on each Fund's expenses during the six month period ending
June 30, 2000.
COMPARISON OF SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A: CLASS B: CLASS C: ADVISOR CLASS:
---------------- ---------------- ---------------- ----------------
IPOF IAPF IPOF IAPF IPOF IAPF IPOF IAPF
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) imposed
on purchases (as a percentage of
offering price)................... 5.75% 5.75% none none none none none none
Maximum deferred sales charge (load)
(as a percentage of net asset
value)............................ none* none* 5.00% 5.00% 1.00% 1.00% none none
Maximum sales charge (load) imposed
on reinvested dividends........... none none none none none none none none
Redemption fee**.................... 2.00%+ 2.00%+ 2.00%+ 2.00%+ 2.00%+ 2.00%+ 2.00%+ 2.00%+
Exchange fee........................ none none none none none none none none
</TABLE>
---------------
* There is no sales charge on investments in Class A shares of $500,000 or
more. A CDSC of 1.00% may apply to such investments if redeemed within two
years of the end of the month of purchase.
** $10 wire fee is charged to the account of shareholders who choose to receive
their redemption proceeds via Federal Funds wire.
+ This amount is deducted from a shareholder's net proceeds on shares redeemed
(or exchanged) within one month after purchase (and retained by the affected
Fund).
COMPARISON OF ANNUALIZED FUND OPERATING EXPENSES*
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ -------------------------
PRO FORMA PRO FORMA
IPOF IAPF COMBINED # IPOF IAPF COMBINED #
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees............................ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Distribution and/or service (12b-1) fees... 0.25% 0.25% 0.25% 1.00% 1.00% 1.00%
Other expenses............................. 1.73% 2.71% 1.54% 1.75% 2.80% 1.57%
Total annual Fund operating expenses....... 2.98% 3.96% 2.79%** 3.75% 4.80% 3.57%**
Expenses reimbursed***..................... 0.79% 1.80% 0.60% 0.79% 1.80% 0.60%
Net Fund operating expenses***............. 2.19% 2.16% 2.19% 2.96% 3.00% 2.97%
</TABLE>
<TABLE>
<CAPTION>
CLASS C ADVISOR CLASS
------------------------ -------------------------
PRO FORMA PRO FORMA
IPOF IAPF COMBINED # IPOF IAPF COMBINED #
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees............................ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Distribution and/or service (12b-1) fees... 1.00% 1.00% 1.00% none none none
Other expenses............................. 1.95% 2.73% 1.50% 1.51% 2.60% 1.35%
Total annual Fund operating expenses....... 3.95% 4.73% 3.50%** 2.51% 3.60% 2.35%**
Expenses reimbursed***..................... 0.79% 1.80% 0.60% 0.79% 1.80% 0.60%
Net Fund operating expenses***............. 3.16% 2.93% 2.90% 1.72% 1.80% 1.75%
</TABLE>
---------------
* For the six months ended June 30, 2000.
# Unaudited
** If the Reorganization is consummated, total annual Fund operating expenses
for a given class could be higher or lower because of changes in the average
account size for the class. If the average account size of a class is
decreased, per-account transfer agent fees (expressed as a percentage of the
class's average net assets) would be higher (see, for example, the
information relating to IAPF-Class A, above). Conversely, if the average
account size of a class is increased, per-account transfer agent fees would
be lower. Mackenzie Investment Management Inc. has agreed to make a payment
to IPOF immediately after the closing of the Reorganization in an amount
estimated to eliminate the impact on affected classes of any increase in
expenses during the 2000 calendar year caused by the Reorganization,
calculated as if the Reorganization took place on June 30, 2000.
5
<PAGE> 9
*** IMI has contractually agreed to reimburse each Fund's expenses, as well as
the expenses of the combined Fund for the current fiscal year to the extent
necessary to ensure that the Fund's Annual Fund Operating Expenses, when
calculated in the aggregate for all classes, do not exceed 1.95% of the
Fund's average net assets (excluding 12b-1 fees and taxes). For each of the
following nine years, IMI has contractually agreed to ensure that these
expenses do not exceed 2.50% of each Fund's average net assets.
EXAMPLES
The following examples are intended to help you compare the cost of
investing in each 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 each 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 A CLASS B CLASS B
YEAR: ---------------------------- ---------------------------- ----------------------------
----- (NO REDEMPTION)
PRO FORMA PRO FORMA PRO FORMA
IPOF IAPF COMBINED # IPOF IAPF COMBINED # IPOF IAPF COMBINED #
------ ------ ---------- ------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st.................. $ 784 $ 781 $ 784 $ 799 $ 803 $ 800 $ 299 $ 303 $ 300
3rd.................. $1,327 $1,319 $1,327 $1,326 $1,338 $1,329 $1,026 $1,038 $1,029
5th.................. $1,895 $1,881 $1,895 $1,975 $1,994 $1,980 $1,775 $1,794 $1,780
10th................. $3,431 $3,404 $3,431 $3,575 $3,595 $3,584 $3,575 $3,595 $3,584
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS C ADVISOR CLASS
YEAR: ---------------------------- ---------------------------- ----------------------------
----- (NO REDEMPTION)
PRO FORMA PRO FORMA PRO FORMA
IPOF IAPF COMBINED # IPOF IAPF COMBINED # IPOF IAPF COMBINED #
------ ------ ---------- ------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st.................. $ 419 $ 396 $ 393 $ 319 $ 296 $ 293 $ 175 $ 183 $ 178
3rd.................. $1,084 $1,017 $1,008 $1,084 $1,017 $1,008 $ 657 $ 681 $ 666
5th.................. $1,870 $1,761 $1,746 $1,870 $1,761 $1,746 $1,165 $1,206 $1,180
10th................. $3,923 $3,720 $3,693 $3,923 $3,720 $3,693 $2,563 $2,644 $2,593
</TABLE>
---------------
# unaudited
PURCHASE, EXCHANGE, REDEMPTION AND DIVIDEND INFORMATION:
The purchase, exchange and redemption procedures and other privileges that
apply to the Funds are identical. Following is a summary of these procedures and
privileges.(7)
Purchase Information. IMDI is the distributor for both IPOF and IAPF and
bears certain expenses in connection with the distribution and sale of the
Funds' shares. Shares of both Funds may be purchased directly through IMSC (the
Funds' transfer agent) or through registered securities dealers who have a sales
agreement with IMDI. The minimum initial investment for Class A, Class B and
Class C shares is $1,000, and the minimum subsequent investment for these shares
is $100. The minimum initial investment for Advisor Class shares is $10,000, and
the minimum subsequent investment is $250.
Investments of less than $50,000 in Class A shares of each Fund are
available at a public offering price equal to their net asset value per share
plus an initial front-end sales charge of 5.75% (6.10% of the net amount
invested). The front-end sales charge on Class A shares is reduced as the amount
invested increases (see the Prospectus). A contingent deferred sales charge of
1.00% applies to Class A shares that were purchased
---------------
7 Following the Reorganization, IAPF shareholders who wish to make additional
purchases of IPOF shares may do so in accordance with the Prospectus.
6
<PAGE> 10
without an initial sales charge (i.e., investments of at least $500,000), but
that are redeemed within two years of the end of the month of purchase.
Purchases of Class A shares of each Fund are based on the public offering price
next determined after the purchase order is received. A cumulative quantity
discount is available by means of "Rights of Accumulation" or through a "Letter
of Intent" (in which a shareholder agrees to purchase, within a 13-month period,
an amount qualifying for a reduced sales charge). Please see the Prospectus for
more information on how the Class A sales charge may be reduced or eliminated.
Class B and Class C shares of each Fund are not subject to a front-end
sales charge, but are subject to a contingent deferred sales charge ("CDSC") if
redeemed within a certain period of time after purchase. Class C shares are
subject to a CDSC of 1.00% if redeemed within one year of purchase, and Class B
shares redeemed within six years of purchase are subject to a CDSC (which is
assessed on an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed) at the following rates:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
YEARS SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
-------------------- -------------------------------
<S> <C>
First....................................................... 5%
Second...................................................... 4%
Third....................................................... 3%
Fourth...................................................... 3%
Fifth....................................................... 2%
Sixth....................................................... 1%
Seventh and thereafter...................................... 0%
</TABLE>
For purposes of computing the CDSC that may be payable upon the redemption
of the new IPOF Class B shares a shareholder receives in connection with the
Reorganization, the holding period of the shareholder's outstanding IAPF Class B
shares will be tacked onto the holding period of the new IPOF Class B shares.
Class B shares convert automatically to Class A shares approximately eight
years after their original purchase date. 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 feature.
Advisor Class shares of both Funds are offered only to certain investors
(such as fiduciaries purchasing shares for employee benefit plans) and are not
subject to an initial sales charge or CDSC. The Prospectus relating to Advisor
Class shares (which is being provided to Advisor Class shareholders) contains a
description of the investors to whom Advisor Class shares may be sold.
Exchange Information: Class A shareholders of each Fund may exchange their
Class A shares for Class A shares of another Ivy fund on the basis of 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 shares that have been invested
for 12 months or longer. In connection with the Reorganization, the period of
time that IAPF shares have been outstanding would be "tacked" onto the period of
time that the post-reorganization IPOF Class A shares have been outstanding.
Shares invested in either Fund that result from reinvested dividends will not be
assessed a sales charge if subsequently exchanged into another Ivy fund.
Class B shareholders of each Fund may exchange their outstanding Class B
shares for Class B shares of another Ivy fund 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 Class B shares. Class B shareholders of
each Fund who exercise the exchange privilege would continue to be subject to
the original Fund's CDSC schedule (or period) following an exchange if such
schedule is higher (or longer) than the CDSC for the new Class B shares. For
purposes of the exchange feature with respect to the new IPOF Class B shares
received in connection with the Reorganization, the holding period of the
outstanding Class B shares of IAPF will be "tacked" onto the holding period of
the new IPOF Class B shares.
7
<PAGE> 11
Class C shareholders of each Fund may exchange their outstanding Class C
shares for Class C shares of another Ivy fund 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 the redemption of Class C shares. For purposes of the
exchange feature with respect to the new IPOF Class C shares received in
connection with the Reorganization, the holding period of the outstanding Class
C shares of IAPF will be "tacked" onto the holding period of the new IPOF Class
C shares.
Both Funds discourage the use of the exchange privilege for the purpose of
timing short-term market fluctuations. The Funds may therefore limit the
frequency of exchanges by a shareholder, charge a redemption fee (see
"Redemption Information" below) or cancel a shareholder's exchange privilege if
at any time it appears that such market-timing strategies are being used. A
redemption fee is charged on the net asset value of shares exchanged within one
month of purchase.
Redemption Information: Shares of each Fund may be redeemed through a
registered securities representative, by mail, by telephone, or by Federal Funds
wire in accordance with the procedures described in the Prospectus. As
previously noted, a charge of $10 per transaction applies if a shareholder
elects to have redemption proceeds wired to his or her bank account. If the
shares to be redeemed have been purchased by check, the payment of redemption
proceeds may be delayed until the earlier of the date the check has cleared or
for up to 15 calendar days. Each Fund may, on 60 days' written notice, redeem
the accounts of shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
Each Fund can experience substantial price fluctuations and is intended for
long-term investors. To encourage long-term investment, to avoid transaction and
other expenses caused by early redemptions and to facilitate portfolio
management, each Fund may charge a 2.00% redemption fee for redemptions of
shares that occur within one month of the date of purchase. This fee is not a
CDSC, is not a commission, and is retained exclusively by the Fund. The
redemption fee is assessed on the net asset value of shares redeemed and is
deducted from the redemption proceeds otherwise payable to the shareholder. This
fee may be waived at the discretion of IMSC.
Dividends and Other Distributions: Each Fund normally distributes
dividends from net investment income and any net realized capital gains after
utilization of capital loss carryforwards, if any, in December to prevent
application of a federal excise tax. An additional distribution may be made if
necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid during the
following January are treated by shareholders for federal income tax purposes as
if received on December 31 of the calendar year in which it is declared.
Dividends and distributions of each Fund are invested in additional shares of
the Fund at net asset value and credited to the shareholder's account on the
payment date or, at the shareholder's election, paid in cash.
If the Plan is approved by IAPF's shareholders, then at a time as close as
practicable to, but before the Closing Date, IAPF will pay its shareholders a
cash distribution of all undistributed 2000 net investment income and
undistributed realized net capital gains.
8
<PAGE> 12
PERFORMANCE INFORMATION:
The information in the following table provides some indication of the
risks of investing in each Fund by showing changes in each Fund's performance
from year to year and how the Fund's average annual returns since each was first
offered for sale to the public compare with those of a broad measure of market
performance. Neither Fund's past performance is an indication of how the Fund
will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999#
<TABLE>
<CAPTION>
ADVISOR MSCI FAR EAST FREE
CLASS A: CLASS B: CLASS C: CLASS: (EX-JAPAN) INDEX
IVY ASIA PACIFIC FUND: -------- -------- -------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Past year:................................... 36.76% 38.64% 42.92% N/A 59.40%
Since inception:*
Class A, B & C:............................ (8.38)% (8.21)% (8.45)% -- (6.98)%
Advisor Class:............................. -- -- -- 4.14% 11.18%
</TABLE>
---------------
# Performance figures reflect the impact of any applicable sales charges and
expense reimbursements.
* The inception date for IAPF's Class A, Class B and Class C shares was January
1, 1997. Advisor Class shares were first sold on July 1, 1999. Index
performance is calculated accordingly.
<TABLE>
<CAPTION>
LIPPER
HANG MCSI IFC CHINA
SENG TAIWAN CHINA REGION
CLASS A: CLASS B: CLASS C: ADVISOR CLASS: INDEX INDEX INDEX CATEGORY
IVY PACIFIC OPPORTUNITIES FUND: -------- -------- -------- -------------- ----- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Past year:................... 38.28% 40.33% 44.41% 46.29% 68.80% 57.21% 105.25% 62.35%
Past 5 years:................ 0.97% 1.02% N/A N/A 15.67% 2.41% (4.25)% 3.20%
Since inception:*
Class A & B:............... (1.48)% (1.29)% -- -- 10.14% 13.34% N/A (0.23)%
Class C:................... -- -- (0.71)% -- 12.62% 6.92% (0.33)% 2.68%
Advisor Class:............. -- -- -- 9.01% 37.12% 28.10% 19.93% 18.26%
</TABLE>
---------------
# Performance figures reflect the impact of any applicable sales charges and
expense reimbursements.
* The inception date for IPOF's Class A and Class B shares was October 22, 1993.
The inception dates for the Fund's Class C and Advisor Class shares were April
30, 1996 and February 10, 1998, respectively. Index performance is calculated
accordingly.
9
<PAGE> 13
FINANCIAL HIGHLIGHTS:
The financial highlights table for IPOF is intended to help you understand
the Fund's financial performance for the six month's ended June 30, 1999
(unaudited) and for the past five years (or less if the Fund has a shorter
operating history), and reflects results for a single Fund share. The total
returns in the table represent the amount an Investor would have earned (or
lost) each year on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The annual information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements is included in the Fund's 1999 Annual Report to shareholders. The
Fund's annual and semiannual reports are available upon request without charge.
IVY PACIFIC OPPORTUNITIES FUND
<TABLE>
<CAPTION>
CLASS A
FOR THE SIX
MONTHS ENDED
JUNE 30,
(UNAUDITED) FOR THE YEAR ENDED DECEMBER 31,
------------ -----------------------------------------------------
2000 1999 1998 1997 1996 1995
------------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of
period........................... $ 9.15 $ 6.30 $ 8.04 $ 10.30 $ 8.58 $ 8.61
------- ------ ------ ------- ------- -------
Income (loss) from investment
operations
Net investment income(a)......... .04 .08 .13 .02(b) .03 .14
Net gain (loss) on securities
(both realized and
unrealized).................... .03 2.86 (1.78) (2.28)(b) 1.74 (.01)
------- ------ ------ ------- ------- -------
Total from investment
operations.............. .07 2.94 (1.65) (2.26) 1.77 .13
------- ------ ------ ------- ------- -------
Less distributions
Dividends
From net investment income..... -- .08 .09 -- .03 .14
In excess of net investment
income....................... -- -- -- -- .02 --
Distributions
From capital gain.............. -- .01 -- -- -- --
In excess of capital gain...... -- -- -- -- -- .02
------- ------ ------ ------- ------- -------
Total distributions....... -- .09 .09 -- .05 .16
------- ------ ------ ------- ------- -------
Net asset value, end of period..... $ 9.22 $ 9.15 $ 6.30 $ 8.04 $ 10.30 $ 8.58
======= ====== ====== ======= ======= =======
Total return (%).......... .77(c) 46.72(d) (20.56)(d) (21.94)(d) 20.50(d) 1.59(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)....................... $10,842 $12,738 $9,061 $12,020 $15,290 $12,855
Ratio of expenses to average net
assets(e)
With expense reimbursement (%)... 2.19(f) 2.19 2.30 2.44 2.20 2.20
Without expense reimbursement
(%)............................ 2.98(f) 2.84 2.86 2.51 2.48 2.73
Ratio of net investment income to
average net assets(%)(a)......... 1.75(f) 1.01 1.60 .28 .32 1.61
Portfolio turnover rate(%)......... 42 23 56 20 22 25
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
CLASS B
FOR THE SIX
MONTHS ENDED
JUNE 30,
(UNAUDITED) FOR THE YEAR ENDED DECEMBER 31,
------------ -----------------------------------------------------
2000 1999 1998 1997 1996 1995
------------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period... $ 9.04 $ 6.24 $ 7.96 $ 10.28 $ 8.58 $ 8.61
------- ------ ------ ------- ------- -------
Income (loss) from investment
operations
Net investment income (loss)(a)...... .02 .02 .05 (.04)(b) (.04) .08
Net gain (loss) on securities (both
realized and unrealized)........... .02 2.81 (1.73) (2.28)(b) 1.74 (.02)
------- ------ ------ ------- ------- -------
Total from investment
operations.................. .04 2.83 (1.68) (2.32) 1.70 .06
------- ------ ------ ------- ------- -------
Less distributions
Dividends
From net investment income......... -- .02 .04 -- -- .08
In excess of net investment
income........................... -- -- -- -- -- .01
Distributions from capital gain........ -- .01 -- -- -- --
------- ------ ------ ------- ------- -------
Total distributions........... -- .03 .04 -- -- .09
------- ------ ------ ------- ------- -------
Net asset value, end of period......... $ 9.08 $ 9.04 $ 6.24 $ 7.96 $ 10.28 $ 8.58
======= ====== ====== ======= ======= =======
Total return(%)............... .44(c) 45.33(d) (21.04)(d) (22.57)(d) 19.67(d) .83(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................... $ 6,425 $7,508 $6,080 $ 7,893 $ 8,995 $ 6,905
Ratio of expenses to average net
assets(e)
With expense reimbursement(%)........ 2.96(f) 2.97 3.08 3.17 2.95 2.95
Without expense reimbursement(%)..... 3.75(f) 3.62 3.64 3.24 3.23 3.48
Ratio of net investment income (loss)
to average net assets(%)(a).......... .99(f) .24 .82 (.45) (.43) .86
Portfolio turnover rate(%)............. 42 23 56 20 22 25
</TABLE>
<TABLE>
<CAPTION>
CLASS C
FOR THE SIX FOR THE PERIOD
MONTHS ENDED APRIL 30, 1996
JUNE 30, (COMMENCEMENT)
(UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
------------ -------------------------------- ---------------
2000 1999 1998 1997 1996
------------ ------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period...... $ 9.07 $ 6.25 $ 7.94 $ 10.24 $ 9.44
------ ------ ------ ------- ------
Income (loss) from investment operations
Net investment income (loss)(a)......... .01 .02 .08 .(03)(b) --
Net gain (loss) on securities (both
realized and unrealized).............. .02 2.82 (1.75) (2.27)(b) .89
------ ------ ------ ------- ------
Total from investment
operations..................... .03 2.84 (1.67) (2.30) .89
------ ------ ------ ------- ------
Less distributions
Dividends
From net investment income............ -- .01 .02 -- --
In excess of net investment income.... -- -- -- -- .09
Distributions from capital gain....... -- .01 -- -- --
------ ------ ------ ------- ------
Total distributions.............. -- .02 .02 -- .09
------ ------ ------ ------- ------
Net asset value, end of period............ $ 9.10 $ 9.07 $ 6.25 $ 7.94 $10.24
====== ====== ====== ======= ======
Total return(%).................. 33(c) 45.41(d) (21.02)(d) (22.46)(d) 9.39(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands).............................. $ 737 $ 776 $ 704 $ 1,129 $ 449
Ratio of expenses to average net assets(e)
With expense reimbursement(%)........... 3.16(f) 3.03 2.98 3.05 2.71(f)
Without expense reimbursement(%)........ 3.95(f) 3.68 3.54 3.12 2.99(f)
Ratio of net investment income to average
net assets(%)(a)........................ .79(f) .18 .92 (.33) (.19)(f)
Portfolio turnover rate(%)................ 42 23 56 20 22
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MONTHS ENDED FEBRUARY 10, 1998
JUNE 30, FOR THE YEAR ENDED (COMMENCEMENT) TO
(UNAUDITED) DECEMBER 31, DECEMBER 31,
ADVISOR CLASS ------------------------ ------------------ --------------------
2000 1999 1998
------------------------ ------------------ --------------------
<S> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period........... $9.03 $ 6.27 $ 7.89
----- ------ -------
Income (loss) from investment operations
Net investment income(a) .06 .04 08
Net gain (loss) on securities (both realized
and unrealized)............................ .03 2.86 (1.62)
----- ------ -------
Total from investment operations...... .09 2.90 (1.54)
----- ------ -------
Less distributions
Dividends from net investment income -- .13 .08
Distributions from capital gain.............. -- .01 --
----- ------ -------
Total Distributions................... -- .14 .08
----- ------ -------
Net asset value, end of period................. $9.12 $ 9.03 $ 6.27
===== ====== =======
Total return(%)....................... 1.00(c) 46.29(d) (19.56)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)....... $ 64 $ 313 $ 10
Ratio of expenses to average net assets(e)
With expense reimbursement(%)................ 1.72(f) 1.79 2.92(f)
Without expense reimbursement(%)............. 2.51(f) 2.44 3.48(f)
Ratio of net investment income to average net
assets(%)(a) 2.22(f) 1.42 .98(f)
Portfolio turnover rate(%)..................... 42 23 56
</TABLE>
---------------
(a) Net investment income (loss) is net of expenses reimbursed by Manager.
(b) Based on average shares outstanding.
(c) Total return represents aggregate total return and does not reflect a sales
charge.
(d) Total return does not reflect a sales charge.
(e) From 1995 to 1998, total expenses include fees paid indirectly, if any,
through an offset arrangement.
(f) Annualized
RISK CONSIDERATIONS
Because IPOF and IAPF have similar investment objectives and policies, the
investment risks of the Funds are also similar. These consist primarily of
management risk, market risk, foreign security and emerging market risk, and
region specific risk. "Management risk" refers to the fact that securities
selected by IMI on behalf of each Fund might not perform as well as the
securities held by other mutual funds with similar investment objectives.
"Market risk" refers to the general risk of investing in equity securities, the
market value of which can fluctuate significantly. 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 each Fund's
performance unfavorably, depending upon prevailing conditions at any given time.
These risks are more acute in countries with developing economies (which
characterizes a number of the countries in which the Funds may invest).
Both of the Funds are also subject to certain risks associated with
investing in the Asia Pacific and Pacific regions. A number of the countries
located in these regions depend heavily on international trade, which makes
their securities markets particularly sensitive to the trade policies and
economic conditions of their principal trading partners. Certain countries in
these regions may also be vulnerable to trade barriers and other protectionist
measures that could have an adverse effect on the value of either Fund's
portfolio. The limited size of the markets for some securities in these regions
can also make them more susceptible to investor perceptions, which can impact
their value and liquidity.
For further discussion of the investment techniques and risk factors that
apply to IPOF and IAPF, see the Prospectus.
12
<PAGE> 16
INFORMATION ABOUT THE REORGANIZATION
DESCRIPTION OF THE PLAN:
As previously noted, the Plan provides for the transfer of all or
substantially all of the assets of IAPF to IPOF in exchange for that number of
full and fractional Class A, Class B, Class C and Advisor Class shares of IPOF
having an aggregate net asset value equal to the aggregate net asset value of
each IAPF shareholder's Class A, Class B, Class C and/or Advisor Class shares
held as of the close of business on the Valuation Date. IAPF will distribute the
IPOF shares received in the exchange to the shareholders of IAPF in complete
liquidation of IAPF. IAPF will then be terminated as a series of the Trust. In
the interest of economy and convenience, shares of IAPF generally are not
represented by physical certificates, and shares of IPOF issued to IAPF
shareholders similarly will be in uncertificated form.
Before the Closing occurs, shareholders of IAPF will be able to redeem
their shares at the net asset value next determined after receipt by IMSC (the
Fund's transfer agent) of a redemption request in proper form. Redemption
requests received by IMSC after the Closing will be treated as requests received
for the redemption of shares of IPOF received by the shareholder in connection
with the Reorganization.
The obligations of the Trust on behalf of each of IPOF and IAPF under the
Plan are subject to various conditions, as stated therein. Among other things,
the Plan requires that all filings be made with, and all authority be received
from, the SEC and such state securities commissions as may be necessary in the
opinion of counsel to permit the parties to carry out the transactions
contemplated by the Plan. IPOF and IAPF are in the process of making the
necessary filings. To provide against unforeseen events, the Plan may be
terminated or amended at any time prior to the Closing by action of the Trustees
of the Trust, notwithstanding the approval of the Plan by the shareholders of
IAPF. However, no amendment may be made that materially adversely affects the
interests of the shareholders of IAPF without obtaining the approval of IAPF's
shareholders. IPOF and IAPF may at any time waive compliance with certain of the
covenants and conditions contained in the Plan. For a complete description of
the terms and conditions of the Reorganization, please refer to the Plan
attached hereto as Exhibit A.
IMI will pay the legal, accounting, printing, postage and solicitation
expenses in connection with the Reorganization. Neither IMI nor IPOF will bear
any costs or expenses associated with IAPF's termination as a series of the
Trust. The combined Fund will pay any applicable SEC registration fees and state
notice filing fees in connection with shares issued in the Reorganization.
REASONS FOR THE REORGANIZATION:
The Reorganization was presented to the Board of Trustees of the Trust for
consideration and approval at a meeting held on August 24, 2000. For the reasons
discussed below, the Trustees of the Trust, including all of the Non-Interested
Trustees, have determined that the interests of IAPF shareholders will not be
diluted as a result of the Reorganization, and that the Reorganization is in the
best interests of IAPF and its shareholders. The Board of Trustees of the Trust,
including all of the Non-Interested Trustees, similarly approved the
Reorganization on behalf of IPOF.
The Reorganization has been recommended by the Board of Trustees of the
Trust as a means of combining separate investment portfolios with virtually
identical investment objectives and a similar geographic focus in an attempt to
achieve enhanced investment performance and distribution capability, as well as
certain economies of scale and attendant cost savings to IAPF's shareholders.
Achievement of these goals cannot be assured.
In determining whether to recommend that the shareholders of IAPF vote to
approve the Plan, the Board of Trustees considered, among other things: (a) the
fees and expense ratios of both IPOF and IAPF; (b) the terms and conditions of
the Reorganization and whether the Reorganization would result in the dilution
of shareholder interests; (c) the compatibility of the Funds' investment
objectives, policies, restrictions and portfolios; (d) the service features
available to shareholders of each Fund; (e) the costs that would be incurred by
the Funds as a result of the Reorganization; and (f) the tax consequences of the
Reorganization.
13
<PAGE> 17
The Board of Trustees also considered that the Reorganization would permit
the shareholders of IAPF to pursue substantially the same investment goals in a
larger fund, and thereby (i) effect portfolio transactions on potentially more
favorable terms, (ii) provide IMI with greater investment flexibility, and (iii)
provide IMI with the ability to select a larger number of portfolio securities
for the combined Fund (with the attendant ability to spread investment risks
among a larger number of portfolio securities).
As noted above, the expense ratios for Class B and Advisor Class shares of
IPOF are currently lower than those for IAPF. In addition, the larger aggregate
net asset base of the pro forma combined Fund ($26,370,191, based on the Funds'
net asset size as of June 30, 2000, as compared with $8,302,474 for IAPF as of
that date) should enable the combined Fund to experience somewhat greater
economies of scale beyond those already experienced by IPOF by spreading certain
costs of operations over a larger asset base. As a general rule, economies of
scale can be expected to be realized primarily with respect to fixed expenses,
such as costs of printing and fees for professional services (although there can
be no assurance that these benefits will be realized). Expenses that are based
on the value of assets or the number of shareholder accounts, such as custody
and transfer agency fees, would be largely unaffected by the Reorganization.
The shareholder service features that are available to IAPF and IPOF
shareholders are identical. For example, each Fund permits shares to be
purchased under an Automatic Investment Plan in which funds are electronically
drawn from a shareholder's bank account on a regular basis. Each Fund also has a
systematic withdrawal plan ("SWP"), in which funds are electronically withdrawn
each month from the shareholders' Fund account and deposited into the
shareholder's bank account. Accordingly, the interests of IAPF shareholders in
this regard would not be affected by the Reorganization.
DESCRIPTION OF THE SECURITIES TO BE ISSUED:
The Trust's authorized capital consists of an unlimited number of shares of
beneficial interest (no par value per share). Each IPOF share issued to
shareholders of IAPF pursuant to the Plan would (i) be fully paid,
non-assessable and redeemable when issued, (ii) be transferable without
restriction, and (iii) have no preemptive or subscription rights.
SHAREHOLDER RIGHTS:
As a Massachusetts business trust, the Trust is governed by its Amended and
Restated Declaration of Trust dated December 10, 1992, as amended from time to
time (the "Declaration of Trust"), its By-Laws and applicable Massachusetts law.
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. 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. In the areas of shareholder voting and the powers and conduct of
the Trustees there are no material differences between the rights of
shareholders of IAPF and the rights of shareholders of IPOF.
FEDERAL INCOME TAX CONSEQUENCES:
The Reorganization is conditioned upon the receipt by the Trust, on behalf
of IAPF and IPOF of an opinion from Dechert Price & Rhoads substantially to the
effect that, based upon certain facts, assumptions and representations of the
parties, for Federal income tax purposes: (i) the transfer to IPOF of all or
substantially all of the assets of IAPF in exchange solely for IPOF shares,
followed by the distribution of such shares to IAPF shareholders in exchange for
their IAPF shares in complete liquidation of IAPF, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and IPOF
and IAPF will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by IAPF upon
the transfer of all or substantially all of its assets to IPOF in exchange
solely for IPOF shares; (iii) the basis of the assets of IAPF in the hands of
IPOF will be the same as the basis of such assets of IAPF immediately prior to
the transfer; (iv) the holding period of the assets of IAPF in the hands of IPOF
will include the period during which such assets were held by IAPF; (v) no gain
or loss will be recognized by IPOF upon the receipt of the assets of IAPF in
exchange for IPOF shares and the assumption by IPOF of all of the liabilities of
IAPF; (vi) no gain or loss will be recognized by the shareholders of IAPF
14
<PAGE> 18
upon the receipt of IPOF shares solely in exchange for their shares of IAPF as
part of the transaction; (vii) the basis of IPOF shares received by the
shareholders of IAPF will be the same as the basis of the shares of IAPF
exchanged therefor; and (viii) the holding period of IPOF shares received by the
shareholders of IAPF will include the holding period during which the shares of
IPOF exchanged therefor were held, provided that at the time of the exchange the
shares of IAPF were held as capital assets in the hands of the shareholders of
IAPF. No opinion will be expressed, however, as to whether any gain or loss will
be recognized by IAPF in connection with the transfer from IAPF to IPOF of any
section 1256 contracts (as defined in Section 1256 of the Code).
As of December 31, 1999, IAPF had a net tax-basis capital loss carryforward
of approximately $1,804,000. The carryforward expires in 2006. For the six
months ended June 30, 2000, IAPF had realized gains of $211,218 and at June 30,
2000 had net unrealized appreciation of $1,489,369. As of December 31, 1999,
IPOF had a net tax-basis capital loss carryforward of approximately $6,282,000.
The carryforward expires $264,000 in 2002, $203,000 in 2003, $1,033,000 in 2004,
$416,000 in 2005, $4,238,000 in 2006 and $128,000 in 2007. For the six months
ended June 30, 2000, IPOF had realized losses of $1,432,326 and at June 30, 2000
had net unrealized appreciation of $4,111,167.
After the reorganization, IAPF's capital loss carryforwards will be
available to IPOF to offset its capital gains, although the amount of these
losses which may offset IPOF's capital gains in any given year may be limited.
As a result of this limitation, it is possible that IPOF may not be able to use
these losses as rapidly as IAPF might have, and part or all of these losses may
not be useable at all. The ability of IPOF or IAPF to absorb losses in the
future depends on a variety of factors that cannot be known in advance,
including the existence of capital gains against which these losses may be
offset. Net capital losses of regulated investment companies generally expire at
the end of the eighth taxable year after they arise, if not previously absorbed
by that time; therefore, it is possible that some or all of IAPF's losses will
expire unused. In addition, the benefits of any capital loss carryforwards
currently are available only to the shareholders of IAPF. After the
reorganization, however, these benefits will inure to all of the shareholders of
IPOF.
Shareholders of IAPF should consult with their tax advisers regarding the
effect, if any, on the proposed Reorganization in light of their individual
circumstances. Because the foregoing discussion relates only to the Federal
income tax consequences of the Reorganization, shareholders of IAPF should also
consult their tax advisers as to state, local and other tax consequences, if
any, of the Reorganization.
LIQUIDATION AND TERMINATION OF IAPF:
If the Reorganization is effected, IAPF will be liquidated and then
terminated as a series of the Trust.
15
<PAGE> 19
CAPITALIZATION:
The following table shows (on an unaudited basis) the capitalization as of
June 30, 2000 of (i) IAPF and IPOF individually and, (ii) the combined Fund, on
a pro forma basis, after giving effect to the Reorganization:
CAPITALIZATION TABLE
VALUES AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
NET ASSET VALUE
NET ASSETS PER SHARE SHARES OUTSTANDING
----------- --------------- ------------------
<S> <C> <C> <C>
IAPF
Class A.......................................... $ 2,749,276 $7.15 384,368
Class B.......................................... $ 3,250,875 $7.05 461,235
Class C.......................................... $ 2,300,597 $7.08 324,896
Advisor Class.................................... $ 1,726 $7.07 244
-----------
Total Net Assets......................... $ 8,302,474
===========
IPOF
Class A.......................................... $10,841,779 $9.22 1,175,768
Class B.......................................... $ 6,424,669 $9.08 707,616
Class C.......................................... $ 737,041 $9.10 80,950
Advisor Class.................................... $ 64,228 $9.12 7,039
-----------
Total Net Assets......................... $18,067,717
===========
Pro Forma Combined*
Class A.......................................... $13,591,055 $9.22 1,473,954
Class B.......................................... $ 9,675,544 $9.08 1,065,642
Class C.......................................... $ 3,037,638 $9.10 333,763
Advisor Class.................................... $ 65,954 $9.12 7,228
-----------
Total Net Assets......................... $26,370,191
===========
</TABLE>
---------------
* Basis of combination: The pro forma combined capitalization table reflects the
proposed merger of IAPF into IPOF, accounted for as though the merger had
become effective on June 30, 2000. The pro forma combined financial
information reflects a decrease in certain fund accounting fees, Blue Sky
fees, Trustees' fees, legal fees, and certain printing costs due to the fact
that these types of expenses are expected to remain at IPOF's level, and a
reduction in the reimbursements paid by IMI due to the fact that the combined
fund expenses are expected to remain below the limit for IPOF.
VOTING MATTERS
Proxies from the shareholders of IAPF are being solicited by the Board of
Trustees of the Trust, on behalf of IAPF, for the Special Meeting of
Shareholders to be held at the offices of the Trust, Via Mizner Financial
Center, 700 South Federal Highway, Boca Raton, Florida 33432, on November 21,
2000 at 10:00 a.m. Eastern time, or at such later time made necessary by
adjournment (the "Meeting"). A proxy may be revoked at any time at or before the
Meeting by written notice to the Secretary of the Trust or by voting in person
at the Meeting. Unless revoked, all properly executed proxies received in time
for the Meeting will be voted in accordance with the specifications thereon or,
in the absence of such specifications, for approval of the Plan and the
Reorganization. This Proxy Statement/Prospectus, Notice of Special Meeting,
Letter of Information Required in the Proxy Statement/Prospectus and proxy
card(s) are expected to be mailed to shareholders on or about October 12, 2000.
Shareholders of record of IAPF at the close of business on September 28,
2000 (the "Record Date") will be entitled to vote at the Meeting or any
adjournment thereof. The holders of a majority of the shares of IAPF outstanding
at the close of business on the Record Date and entitled to vote at the Meeting,
present in person
16
<PAGE> 20
or represented by proxy, will constitute a quorum for the Meeting. Approval of
the Plan requires the affirmative vote of the holders of a majority of the
shares of IAPF entitled to vote. Shareholders are entitled to one vote for each
share held and fractional votes for fractional shares held. As of September 28,
2000, as shown on the books of IAPF, there were 425,306 Class A, 405,534 Class
B, 247,531 Class C and no Advisor Class shares of beneficial interest of IAPF
issued and outstanding. The votes of the shareholders of IPOF are not being
solicited, because their approval or consent is not necessary for the
Reorganization to take place.
For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" will be treated as
shares that are present, but that have not been voted. Broker "non-votes" are
proxies received by IAPF from brokers or nominees when the broker or nominee
neither has received instructions from the beneficial owner(s) or other
person(s) entitled to vote nor has discretionary power to vote on a particular
matter. Abstentions and broker "non-votes" will have the effect of a "no" vote
on the Plan.
In the event that a quorum is not present at the Meeting or a quorum is
present but sufficient votes to approve the Plan are not received, the persons
named as proxies may propose one or more adjournments of the Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the meeting in
person or by proxy. If a quorum is present, the persons named as proxies will
vote those proxies that they are entitled to vote FOR the Plan in favor of such
an adjournment and will vote those proxies that they are required to vote
AGAINST the Plan against any such adjournment.
As of September 28, 2000, the officers and Trustees of Ivy Fund as a group
owned beneficially less than 1% of the outstanding shares of each Fund. Appendix
1 hereto sets forth the beneficial owners of at least 5% of each Fund's shares.
To the best knowledge of the Trust, as of September 28, 2000, no person owned
beneficially more than 5% of either Fund's outstanding shares, except as
indicated in Appendix 1.
ADDITIONAL INFORMATION
INFORMATION ABOUT THE FUNDS:
Information concerning the operation and management of IPOF and IAPF is
included in the Prospectus, which is provided herewith. The Funds are subject to
the informational requirements of the Securities Exchange Act of 1934, and in
accordance therewith file proxy material, reports and other information,
including charter documents, with the SEC. These reports can be inspected and
copied at the Public Reference Facilities maintained by the SEC, located at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following SEC Regional
Offices: Northeast Regional Office, 7 World Trade Center, Suite 1300, New York,
NY 10048; Southeast Regional Office, 1401 Brickell Avenue, Suite 200, Miami, FL
33131; Midwest Regional Office, Citicorp Center, 500 W. Madison Street, Chicago,
IL, 60661-2511; Central Regional Office, 1801 California Street, Suite 4800,
Denver, CO 80202-2648; and Pacific Regional Office, 5670 Wilshire Boulevard,
11th Floor, Los Angeles, CA 90036-3648. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C. 20549
at prescribed rates. The SEC maintains an Internet website (http://www.sec.gov)
that contains additional information about the Funds.
INTERESTS OF CERTAIN PERSONS:
IMI provides business management and investment advisory services to both
IPOF and IAPF, Mackenzie Investment Management Inc. ("MIMI") provides
administrative and accounting services, and Ivy Mackenzie Service Corp. ("IMSC")
provides transfer agency and shareholder-related services for each Fund. IMDI
distributes each Fund's shares. IMI, IMDI and IMSC are wholly-owned subsidiaries
of MIMI. MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), which
has been an investment counsel and mutual fund manager in Toronto, Ontario,
Canada for more than 30 years. The offices of IMI, MIMI, IMSC, IMDI and the
Trust are each located at Via Mizner Financial Plaza, 700 South Federal Highway,
17
<PAGE> 21
Suite 300, Boca Raton, Florida 33432. MFC is located at 150 Bloor Street West,
Suite 400, Toronto, Ontario, Canada M5S3B5. None of IMI, MIMI, IMDI, IMSC or MFC
has a financial interest in the Reorganization.
SHAREHOLDER PROPOSALS FOR SUBSEQUENT MEETINGS:
Neither Fund, as a general matter, holds regular annual or other meetings
of shareholders. Any shareholder who wishes to submit proposals to be considered
at a subsequent meeting of shareholders of IPOF should send such proposals to
the principal executive offices of the Trust, Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, Florida 33432. Any shareholder who
wishes to submit proposals to be considered at a subsequent meeting of
shareholders of IPOF should also send such proposals to the principal executive
offices of the Trust, within a reasonable time before the solicitation of
proxies for such meeting. It is suggested that proposals be submitted by
certified mail, return receipt requested. The timely submission of a proposal
does not guarantee its inclusion.
OTHER BUSINESS:
The Trustees of the Trust know of no other business to be brought before
the Meeting. If any other matters properly come before the Meeting, however,
proxies will be voted in accordance with the judgment of persons named as
proxies.
If you cannot attend the Meeting in person, please complete and sign the
enclosed proxy and return it in the envelope provided so that the Meeting may be
held and action taken on the matters described herein with the greatest possible
number of shares participating.
PROXY SOLICITATION:
Proxies are to be solicited by mail. Additional solicitations may be made
by telephone, telegraph or personal contact by officers, employees or agents of
IMI and its affiliates.
Shareholder Communications Corp. ("SCC") has been retained to assist in the
solicitation of proxies in connection with the Reorganization. For its services,
SCC will be paid a fee expected to equal approximately $5,000 and will be
reimbursed by IMI for its expenses in connection with the Reorganization. As the
meeting date approaches, shareholders who have not yet cast their votes may
receive a telephone call from a representative of SCC. Proxies that are obtained
telephonically will be recorded in accordance with procedures that IMI believes
are reasonably designed to ensure that both the identity of the shareholder
casting the vote and his or her voting instructions are accurately recorded. IMI
will pay the fees and expenses of SCC in connection with the Reorganization.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMENDS APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION, AND
ANY UNMARKED PROXIES WILL BE SO VOTED.
18
<PAGE> 22
APPENDIX 1
BENEFICIAL OWNERS OF 5% OR MORE OF FUND SHARES
IVY ASIA PACIFIC FUND
To the best knowledge of Ivy Fund, as of September 28, 2000, the following
persons owned 5% or more of IAPF's Class A, Class B, Class C and Advisor Class
shares, as indicated:
Class A: Northern Trust Custodian FBO W. Hall Wendel Jr., P.O. Box
92956 Chicago, IL 60675, owned of record 127,877.238 shares (30.06%),
Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers,
Attn: Fund Administration, 4800 Deer Lake Dr. E., 3(rd) FL Jacksonville, FL
32246, owned of record 59,264.096 shares (13.93%), and Bear Stearns
Securities Corp., 1 Metrotech Center North, Brooklyn, NY 11201-3859, owned
of record 44,378.698 shares (10.43%).
Class B: Merrill Lynch Pierce Fenner & Smith For the sole benefit of
its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3(rd) FL,
Jacksonville, FL, owned of record 176,794.366 shares (43.06%).
Class C: Merrill Lynch Pierce Fenner & Smith For the sole benefit of
its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3(rd) FL,
Jacksonville, FL, owned of record 28,811.013 shares (11.5%) and Painewebber
For the Benefit of Robert Ahnert & Margaret Ahnert JTWROS, 624 Flamingo
Dr., Ft. Lauderdale, FL 33301, owned of record 17,623.011 shares (7.03%);
Advisor Class: National Investor Services FBO, 55 Water Street,
32(nd) Floor, New York, NY 10041, owned of record 0.001 share (100%).
IVY PACIFIC OPPORTUNITIES FUND
To the best knowledge of The Trust, as of September 28, 2000, the following
persons owned 5% or more of IPOF's Class A, Class B, Class C and Advisor Class
shares, as indicated:
Class A: Merrill Lynch Pierce Fenner & Smith For the sole benefit of
its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3(rd) FL,
Jacksonville, FL, owned of record 59,814.145 shares (5.16%);
Class B: Merrill Lynch Pierce Fenner & Smith For the sole benefit of
its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3(rd) FL,
Jacksonville, FL, owned of record 111,878.954 (16.91%);
Class C: Merrill Lynch Pierce Fenner & Smith For the sole benefit of
its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3(rd) FL,
Jacksonville, FL, owned of record 29,168.650 shares (39.35%), Painewebber
For the Benefit of Painewebber Cdn FBO Painewebber, Inc., FBO Leviss M,
P.O. Box 3321, Weehawken, NJ 07087-8154, owned of record 4,816.000 shares
(6.49%).
Advisor Class: Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E.,
3(rd) FL, Jacksonville, FL, owned of record 5,199.127 shares (73.64%), LPL
Financial Services, 9785 Towne Centre Drive, San Diego, CA 92121-1968,
owned of record 1,375.330 shares (19.48%).
19
<PAGE> 23
INDEX OF EXHIBITS
Exhibit A: Form of Agreement and Plan of Reorganization.
20
<PAGE> 24
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of November, 2000, by and between Ivy Fund, a Massachusetts
business trust with its principal place of business at Via Mizner Financial
Plaza, 700 South Federal Highway, Boca Raton, Florida 33432, on behalf of Ivy
Pacific Opportunities Fund (the "Acquiring Fund"), a separate series of Ivy Fund
(in such capacity, the "Acquiring Trust"), and Ivy Fund, on behalf of Ivy Asia
Pacific Fund (the "Acquired Fund"), a separate series of Ivy Fund (in such
capacity, the "Acquired Trust").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A, Class B,
Class C and Advisor Class voting shares of beneficial interest, no par value per
share, of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, and the
distribution of the Acquiring Fund Shares to the Class A, Class B, Class C and
Advisor Class shareholders of the Acquired Fund, in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Transfer of Assets of the Acquired Fund to the Acquiring Fund in
Exchange for Acquiring Fund Shares, the Assumption of Acquired Fund Liabilities
and the Liquidation of the Acquired Fund
1.1 Subject to the terms and conditions set forth herein and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Class A, Class B, Class C and Advisor Class Acquiring Fund Shares
determined by dividing the value of the Acquired Fund's assets with respect to
each Class, computed in the manner and as of the time and date set forth in
section 2.1, by the net asset value of one Acquiring Fund Share of the Class,
computed in the manner and as of the time and date set forth in section 2.2, and
(ii) to assume all liabilities of the Acquired Fund, as set forth in section
1.3. Such transactions shall take place at the closing provided for in section
3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets of the Acquired Fund (collectively, the "Assets"),
including, without limitation, all cash, cash equivalents, securities,
commodities and futures interests and dividends or interest or other receivables
that are owned by the Acquired Fund, and any deferred or prepaid expenses shown
on the unaudited statement of assets and liabilities of the Acquired Fund
prepared as of the effective time of the closing (the "Effective Time
Statement"), prepared in accordance with generally accepted accounting
principles ("GAAP") applied consistently with those of the Acquired Fund's most
recent audited balance sheet.
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date, as defined in section
3.1. All liabilities not so discharged will be assumed by the Acquiring Fund.
1.4. On or as soon as practicable prior to the Closing Date, as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all (and in no event less than 98%) of its investment
company taxable income (computed without regard to any deduction for dividends
paid) and realized net capital gain, if any, for the current taxable year
through the Closing Date.
1.5. Immediately after the transfer of the Assets provided for in section
1.1 (the "Liquidation Time"), the Acquired Fund will (a) distribute to the
Acquired Fund's shareholders of record with respect to each Class of its shares,
determined as of the Valuation Time, as defined in Section 2.1 (the "Acquired
Fund
A-1
<PAGE> 25
Shareholders"), on a pro rata basis within that Class, the Acquiring Fund Shares
of the same Class received by the Acquired Fund pursuant to section 1.1 and (b)
completely liquidate. Such distribution and liquidation will be accomplished,
with respect to each Class of the Acquired Fund's shares, by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Class A, Class B, Class C and Advisor Class Acquiring Fund Shares
to be so credited to Class A, Class B, Class C and Advisor Class Acquired Fund
Shareholders shall, with respect to each Class, be equal to the aggregate net
asset value of the Acquired Fund shares of that same Class owned by such
shareholders as of the Valuation Time. All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund, although share certificates representing interests in Class A, Class B,
Class C and Advisor Class shares of the Acquired Fund will represent a number of
the same Class of Acquiring Fund Shares after the Closing Date as determined in
accordance with section 2.3. The Acquiring Fund will not issue certificates
representing Acquiring Fund Shares in connection with such exchange except
certificates representing Class A, Class B, Class C and Advisor Class Acquiring
Fund Shares may be obtained upon request by a shareholder of the Acquired Fund.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then current prospectus and statement of
additional information.
As soon as is reasonably practicable after the Liquidation Time, but not
until the earlier of (i) payment by Acquiring Fund of all assumed liabilities or
(ii) 90 days after the Closing Date, Acquired Fund shall be terminated as a
series of the Acquired Trust under Massachusetts law. The Acquired Fund shall
not conduct any business on and after the Closing Date except in connection with
its liquidation and termination as a series of the Acquired Trust.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date, as defined in Section 3.1. All such books and records shall be available
to the Acquired Fund thereafter until the Acquired Fund is terminated as a
series of the Acquired Trust.
2. Valuation
2.1. The value of the Assets shall be computed as of the close of regular
trading on the New York Stock Exchange on the business day immediately preceding
the Closing Date, as defined in Section 3.1 (such time and date being
hereinafter called the "Valuation Time") after the declaration and payment of
any dividends and/or other distributions on that date, using the valuation
procedures set forth in Ivy Fund's Amended and Restated Declaration of Trust
dated December 10, 1992, as amended (the "Declaration of Trust"), and then-
current prospectus or statement of additional information.
2.2. The net asset value of a Class A, Class B, Class C and Advisor Class
Acquiring Fund share shall be the net asset value per share computed with
respect to that Class as of the Valuation Time using the valuation procedures
referred to in section 2.1.
2.3. The number of the Class A, Class B, Class C and Advisor Class
Acquiring Fund Shares to be issued (including fractional shares, if any) in
exchange for the Assets shall be determined with respect to each such Class by
dividing the value of the Assets with respect to Class A, Class B, Class C and
Advisor Class shares of the Acquired Fund, as the case may be, determined in
accordance with section 2.1 by the net asset value of an Acquiring Fund Share of
the same Class determined in accordance with section 2.2.
A-2
<PAGE> 26
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.
3. Closing and Closing Date
3.1. The Closing of the transactions contemplated by this Agreement shall
be November 22, 2000, or such later date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously as of 4:00 P.M., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of Dechert Price & Rhoads or at such other place and time as the parties
may agree.
3.2. The Acquired Fund shall deliver to the Acquiring Fund on the Closing
Date a schedule of assets.
3.3. Brown Brothers Harriman & Co., as custodian for the Acquired Fund,
shall (a) deliver at the Closing a certificate of an authorized officer stating
that the Assets shall have been delivered in proper form to Brown Brothers
Harriman & Co., custodian for the Acquiring Fund, prior to or on the Closing
Date and (b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by Custodian for Acquired Fund to Custodian for Acquiring Fund for
examination no later than five business days preceding the Closing Date and
transferred and delivered by the Acquired Fund as of the Closing Date by the
Acquired Fund for the account of Acquiring Fund duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof. Acquired
Fund's portfolio securities and instruments deposited with a securities
depository, as defined in Rule 17f-4 under the 1940 Act, shall be delivered as
of the Closing Date by book entry in accordance with the customary practices of
such depositories and Custodian for Acquiring Fund. The cash to be transferred
by the Acquired Fund shall be delivered by wire transfer of federal funds on the
Closing Date.
3.4. Ivy Mackenzie Services Corp. (the "Transfer Agent"), on behalf of the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Acquired
Fund Shareholders and the number and percentage ownership of outstanding Class
A, Class B, Class C and Advisor Class shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Acquired Fund or provide evidence satisfactory to the Acquired Fund
that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the New
York Stock Exchange or another primary trading market for portfolio securities
of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
such Exchange or elsewhere shall be disrupted so that, in the judgment of the
Board of Trustees of the Acquiring Trust and Board of Trustees of the Acquired
Trust, accurate appraisal of the value of the net assets with respect to the
Class A, Class B, Class C and Advisor Class shares of the Acquiring Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
4. Representations and Warranties
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Declaration of Trust to own all of its properties and assets and
to carry on its business as it is now being conducted;
A-3
<PAGE> 27
(b) The Acquired Trust is registered with the Commission as an
open-end management investment company under the 1940 Act and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection
with the portfolio management of the Acquired Fund which shall terminate on
or prior to the Closing Date the Acquired Trust is not, and the execution,
delivery and performance of this Agreement by the Acquired Trust will not
result, in violation of Massachusetts law or of the Declaration of Trust or
By-Laws, or of any material agreement, indenture, instrument, contract,
lease or other undertaking known to counsel to which the Acquired Fund is a
party or by which it is bound, and the execution, delivery and performance
of this Agreement by the Acquired Fund will not result in the acceleration
of any obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
Acquired Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquired Fund or any
properties or assets held by it. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The Statement of Assets and Liabilities, Operations, and Changes
in Net Assets, the Supplementary Information, and the Investment Portfolio
of the Acquired Fund at and for the fiscal year ended December 31, 1999 has
been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, and is in accordance with GAAP consistently applied, and such
statement (a copy of which has been furnished to the Acquiring Fund)
presents fairly, in all material respects, the financial position of the
Acquired Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquired Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with GAAP as
of such date not disclosed therein;
(g) Since December 31, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquired Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment
company and has elected to be treated as such, has been eligible to and has
computed its federal income tax under Section 852 of the Code, and will
have distributed all of its
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<PAGE> 28
investment company taxable income and net capital gain (as defined in the
Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws, (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable (recognizing that, under Massachusetts law,
Acquired Fund Shareholders could, under certain circumstances, be held
personally liable for obligations of the Acquired Fund), and (iii) will be
held at the time of the Closing by the persons and in the amounts set forth
in the records of the Transfer Agent, as provided in section 3.3. The
Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the Acquired Fund shares, nor is
there outstanding any security convertible into any of the Acquired Fund
shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Assets and full right, power, and authority to
sell, assign, transfer and deliver the Assets free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquiring
Fund has received notice at or prior to the Closing, and upon delivery and
payment for the Assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, except those
restrictions as to which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trustees of the Acquired Trust, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Acquiring Fund for use therein.
4.2. The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Declaration of Trust to own all of its properties and assets and
to carry on its business as it is now being conducted;
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(b) The Acquiring Trust is registered with the Commission as an
open-end management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result, in a
violation of Massachusetts law or of the Declaration of Trust or By-Laws,
or of any material agreement, indenture, instrument, contract, lease or
other undertaking known to counsel to which the Acquiring Fund is a party
or by which it is bound, and the execution, delivery and performance of
this Agreement by the Acquiring Fund will not result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
Acquiring Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any
properties or assets held by it. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The Statement of Assets and Liabilities, Operations, and Changes
in Net Assets, the Supplementary Information, and the Investment Portfolio
of the Acquiring Fund at and for the fiscal year ended December 31, 1999
has been audited by PricewaterhouseCoopers LLP, independent certified
public accountants, and is in accordance with GAAP consistently applied,
and such statement (a copy of which has been furnished to the Acquired
Fund) presents fairly, in all material respects, the financial position of
the Acquiring Fund as of such date in accordance with GAAP, and there are
no known contingent liabilities of the Acquiring Fund required to be
reflected on a balance sheet (including the notes thereto) in accordance
with GAAP as of such date not disclosed therein;
(g) Since December 31, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquired Fund. For purposes of
this subsection (g), a decline in net asset value per share of the
Acquiring Fund due to declines in market values of securities in the
Acquiring Fund's portfolio, the discharge of Acquiring Fund liabilities, or
the redemption of Acquiring Fund shares by Acquiring Fund shareholders
shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and on
the Closing Date will be, duly
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<PAGE> 30
and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders
could, under certain circumstances, be held personally liable for
obligations of the Acquiring Fund). The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Class A, Class B, Class C and Advisor Class Acquiring Fund
Shares to be issued and delivered to the Acquired Fund, for the account of
the Acquired Fund Shareholders, pursuant to the terms of this Agreement,
will at the Closing Date have been duly authorized and, when so issued and
delivered, will be duly and validly issued and outstanding Acquiring Fund
Shares, and will be fully paid and non-assessable (recognizing that, under
Massachusetts law, Acquiring Fund Shareholders could, under certain
circumstances, be held personally liable for obligations of the Acquiring
Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the its assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trustees of the Acquiring Trust and this Agreement will
constitute a valid and binding obligation of the Acquiring Trust, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. Covenants of the Acquiring Fund and the Acquired Fund
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions, (ii)
such changes as are contemplated by the Funds' normal operations, and (b) each
Fund shall retain exclusive control of the composition of its portfolio until
the Closing Date.
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<PAGE> 31
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than November 21, 2000.
5.4. The Acquired Fund covenants that the Class A, Class B, Class C and
Advisor Class Acquiring Fund Shares to be issued hereunder are not being
acquired for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund Shares and will provide the
Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of the Assets and otherwise to carry
out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all Acquiring
Fund shares to be transferred to the Acquired Fund pursuant to this Agreement
and (ii) assume the assumed liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Class A, Class B, Class C and Advisor Class Acquiring Fund Shares received at
the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
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<PAGE> 32
6. Conditions Precedent to Obligations of the Acquired Fund
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Trust, with
respect to the Acquiring Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement, as of the
Closing Date, with the same force and effect as if made on and as of the Closing
Date; and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund, the Acquiring Fund or their advisers, directors,
trustees or officers arising out of this Agreement and (ii) no facts known to
the Acquired Fund which the Acquired Fund reasonably believes might result in
such litigation;
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Trust with respect to the Acquiring Fund made in this Agreement
are true and correct on and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquired Fund shall reasonably request;
6.3. The Acquired Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquiring Trust is a duly formed and validly existing
Massachusetts business trust; (b) the Acquiring Fund has the power to carry
on its business as presently conducted in accordance with the description
thereof in Ivy Fund's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquiring
Trust, on behalf of the Acquiring Fund, and constitutes a valid and legally
binding obligation of the Acquiring Trust, on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; (d) the execution and delivery of the Agreement
did not, and the exchange of the Assets for Class A, Class B, Class C and
Advisor Class Shares of the Acquiring Fund pursuant to the Agreement will
not, violate the Declaration of Trust or By-laws; and (e) to the knowledge
of such counsel, all regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Acquiring Fund under the
Federal laws of the United States or the laws of the Commonwealth of
Massachusetts for the exchange of the Assets for Class A, Class B, Class C
and Advisor Class Shares of the Acquiring Fund, pursuant to the Agreement
have been obtained or made; and
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
7. Conditions Precedent to Obligations of the Acquiring Fund
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, with respect
to the Acquired Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund, the Acquired Fund or their advisers, directors, trustees or
officers arising out of this
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<PAGE> 33
Agreement and (ii) no facts known to the Acquiring Fund which the Acquiring Fund
reasonably believes might result in such litigation;
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquired Trust with respect to the Acquired Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Trust is a duly formed and validly existing
Massachusetts business trust; (b) the Acquired Fund has the power to carry
on its business as presently conducted in accordance with the description
thereof in the Acquired Trust's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by the
Acquired Trust, on behalf of the Acquired Fund, and constitutes a valid and
legally binding obligation of the Acquired Trust, on behalf of the Acquired
Fund, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; (d) the execution and delivery of the Agreement
did not, and the exchange of the Assets for Class A, Class B, Class C and
Advisor Class Shares of the Acquiring Fund pursuant to the Agreement will
not, violate the Declaration of Trust or By-laws; and (e) to the knowledge
of such counsel, all regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Acquired Fund under the
Federal laws of the United States or the laws of the Commonwealth of
Massachusetts for the exchange of the Assets for Class A, Class B, Class C
and Advisor Class Shares of the Acquiring Fund pursuant to the Agreement
have been obtained or made; and
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
8. Further Conditions Precedent to Obligations of the Acquiring Fund and
the Acquired Fund
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust and By-Laws, applicable Massachusetts law and the 1940 Act,
and certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
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<PAGE> 34
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Dechert Price & Rhoads
addressed to each Trust substantially to the effect that, based upon certain
facts, assumptions and representations, the transaction contemplated by this
Agreement constitutes a tax-free reorganization for Federal income tax purposes.
The delivery of such opinion is conditioned upon receipt by Dechert Price &
Rhoads of representations it shall request of each Trust. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired
Fund may waive the condition set forth in this section 8.5. No opinion will be
expressed, however, as to whether any gain or loss will be recognized by the
Acquired Fund in connection with the transfer from the Acquired Fund to the
Acquiring Fund of any section 1256 contracts (as defined in Section 1256 of the
Code).
9. Indemnification
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. Fees and Expenses
10.1. The Acquiring Trust, on behalf of the Acquiring Fund, and the
Acquired Trust, on behalf of the Acquired Fund, represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Ivy Management, Inc. ("IMI") will pay the legal, accounting,
printing, postage, and solicitation expenses in connection with the
Reorganization. The combined entity resulting from the transactions contemplated
herein will pay the registration fees, if any, in connection with the
Reorganization. Any such expenses that relate to the Acquired Fund and are so
borne by IMI or the resulting combined entity shall be solely and directly
related to the Reorganization, within the meaning of Revenue Ruling 73-54,
1973-1 C.B. 187.
11. Entire Agreement; Survival of Warranties
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquired Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
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<PAGE> 35
12. Termination
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or (ii)
by either party if the Closing shall not have occurred on or before December 31,
2000, unless such date is extended by mutual agreement of the parties, or (iii)
by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective directors/trustees or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. Amendments
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to section 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Class A, Class B,
Class C and Advisor Class Acquiring Fund shares to be issued to the Acquired
Fund Shareholders under this Agreement to the detriment of such Shareholders
without their further approval.
14. Notices
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Via Mizner Financial Plaza, 700 South Federal Highway, Boca
Raton, FL 33432, with a copy to Dechert Price & Rhoads, Ten Post Office Square -
South, Boston, MA 02109, Attention: Joseph R. Fleming, or to the Acquiring Fund,
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, FL 33432,
with a copy to Dechert Price & Rhoads, Attention: Joseph R. Fleming, or to any
other address that the Acquired Fund or the Acquiring Fund shall have last
designated by notice to the other party.
15. Headings; Counterparts; Assignment; Limitation of Liability
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. Ivy Fund is organized as a Massachusetts business trust, and
references in this Agreement to the Acquiring Trust or the Acquired Trust mean
and refer to the Trustees from time to time serving in accordance with the
Declaration of Trust, pursuant to which Ivy Fund conducts its business. It is
expressly agreed that the obligations of the Acquiring Trust and the Acquired
Trust hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents, or employees of Ivy Fund, the Acquiring Fund or the
Acquired Fund personally, but bind only the respective property of each of the
Acquiring Fund and the Acquired Fund, as provided in the Declaration of Trust.
Moreover, no series of Ivy Fund other than the Acquiring Fund and the Acquired
Fund shall be responsible for the obligations of the Acquiring Trust and the
Acquired Trust hereunder, and all persons shall look only to the respective
assets of each of the Acquiring
A-12
<PAGE> 36
Fund and the Acquired Fund to satisfy the obligations of the Acquiring Trust and
the Acquired Trust hereunder. The execution and the delivery of this Agreement
have been authorized by Ivy Fund's Board of Trustees, on behalf of each of the
Acquiring Fund and the Acquired Fund, respectively, and this Agreement has been
signed by authorized officers of each of the Acquiring Fund and the Acquired
Fund acting as such, and neither such authorization by such Trustees, nor such
execution and delivery by such officers, shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
but shall bind only the respective property of each of the Acquiring Fund and
the Acquired Fund, as provided in the Declaration of Trust.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
<TABLE>
<S> <C>
IVY FUND
on behalf of Ivy Asia Pacific Fund
Attest:
----------------------------------------------------- -----------------------------------------------------
C. William Ferris, Secretary By: James W. Broadfoot, President
IVY FUND
on behalf of Ivy Pacific Opportunities Fund
Attest:
----------------------------------------------------- -----------------------------------------------------
C. William Ferris, Secretary By: James W. Broadfoot, President
</TABLE>
A-13
<PAGE> 37
FORM OF PROXY
IVY ASIA PACIFIC FUND THIS PROXY IS SOLICITED ON BEHALF
a series of IVY FUND OF THE BOARD OF TRUSTEES
The undersigned, having received Notice of the November 21, 2000
Special Meeting of Shareholders of Ivy Asia Pacific Fund (the "Fund"), a series
of Ivy Fund (the "Trust"), and the related Proxy Statement/Prospectus, hereby
appoints C. William Ferris, Keith J. Carlson, and Paula K. Wolfe, and each of
them, as proxies, with full power of substitution and revocation, to represent
the undersigned and to vote all shares of the Fund that the undersigned is
entitled to vote at the Special Meeting of Shareholders of the Fund to be held
on November 21, 2000 at 10:00 a.m. Eastern time, and any adjournments or
postponements thereof.
PLEASE INDICATE VOTE ON OPPOSITE SIDE OF CARD.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL.
Dated: __________________, 2000
Please sign name or names as appearing on
proxy and return promptly in the enclosed
postage-paid envelope. If signing as a
representative, please include capacity.
[Name, address]
------------------------------
Signature(s) of Shareholder(s)
[REVERSE SIDE OF CARD]
Please indicate your vote by filling in the appropriate box below, using blue or
black ink or dark pencil (do not use red ink). This proxy will be voted in
accordance with your specifications. If no specification is made, this proxy
will be voted in favor of the Proposal.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PROPOSAL: Approval of the Agreement and Plan of Reorganization between the
Trust, on behalf of the Fund, and the Trust, on behalf of Ivy
Pacific Opportunities Fund, as set forth in the Proxy
Statement/Prospectus.
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER BUSINESS
THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF.
PLEASE DO NOT FORGET TO SIGN THE OTHER SIDE OF THIS CARD.
<PAGE> 38
PART B
IVY FUND
------------------------------------------------------------------------------
Statement of Additional Information
October 10, 2000
------------------------------------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
Ivy Asia Pacific Fund ("IAPF"), Ivy Pacific Opportunities Fund ("IPOF")
a series of Ivy Fund (the "Trust") a series of the Trust
Via Mizner Financial Plaza Via Mizner Financial Plaza
700 South Federal Highway 700 South Federal Highway
Boca Raton, FL 33432 Boca Raton, FL 33432
This Statement of Additional Information is available to the shareholders of
IAPF in connection with a proposed transaction whereby IPOF will acquire all or
substantially all of the assets and all of the liabilities of IAPF in exchange
for shares of IPOF (the "Reorganization").
This Statement of Additional Information of the Trust contains material that may
be of interest to investors but that is not included in the Prospectus/Proxy
Statement of the Trust relating to the Reorganization. This Statement of
Additional Information consists of this cover page and the following documents:
1. The Funds' Statements of Additional Information dated May 1, 2000 as
supplemented on September 29, 2000 (one for the Funds' Class A, B and
C shares and a second for the Funds' Advisor Class shares), which were
filed with the Securities and Exchange Commission (the "Commission")
via EDGAR on September 29, 2000 (File No. 2-17613) and are
incorporated by reference herein.
2. Each Fund's Semi-Annual Report to Shareholders for the period ended
June 30, 2000, which were filed with the Commission via EDGAR on
August 31, 2000 (File No. 811-01028) and are incorporated by reference
herein.
3. Each Fund's Annual Report to shareholders for the fiscal year ended
December 31, 1999, which were filed with the Commission via EDGAR on
February 28, 2000 (File No. 811-01028) and are incorporated by
reference herein.
4. Pro forma combined financial statements (unaudited) of the Funds for
the period ended June 30, 2000.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated October 10, 2000 relating to the Reorganization may
be obtained by writing IAPF at Via Mizner Financial Plaza, 700 South Federal
Highway, Boca Raton, Florida 33432, or by calling Ivy Mackenzie Distributors,
Inc. (the Fund's distributor) at 1-800-456-5111. This Statement of Additional
Information should be read in conjunction with the Proxy Statement/Prospectus.
<PAGE>
IVY ASIA PACIFIC FUND
IVY DEVELOPING MARKETS FUND
IVY EUROPEAN OPPORTUNITIES FUND
IVY GLOBAL FUND
IVY GLOBAL NATURAL RESOURCES FUND
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
IVY INTERNATIONAL VALUE FUND
IVY INTERNATIONAL SMALL COMPANIES FUND
IVY PACIFIC OPPORTUNITIES FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
(as supplemented on September 29, 2000)
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of eighteen portfolios, each of which (except for Ivy
International Strategic Bond Fund) is diversified. This Statement of Additional
Information ("SAI") relates to the Class A, B and C shares of the nine Funds
listed above, and to the Class I shares of Ivy European Opportunities Fund, Ivy
Global Science & Technology Fund, Ivy International Value Fund, and Ivy
International Small Companies Fund (each a "Fund"). The other nine portfolios of
the Trust are described in separate prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Funds dated May 1, 2000, as may be supplemented from time to
time (the "Prospectus"), which may be obtained upon request and without charge
from the Trust at the Distributor's address and telephone number printed below.
The Funds also offer Advisor Class shares, which are described in a separate
prospectus and SAI that may also be obtained without charge from the
Distributor.
Each Fund's Annual Report to shareholders, dated December 31, 1999
(each an "Annual Report"), is incorporated by reference into this SAI. Each
Fund's Annual Report may be obtained without charge from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
INVESTMENT ADVISER
(for Ivy Global Natural Resources Fund)
Mackenzie Financial Corporation ("MFC")
150 Bloor Street West
Suite 400
Toronto, Ontario
CANADA M5S3B5
Telephone: (416) 922-5322
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION...........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS............................1
IVY ASIA PACIFIC FUND................................................2
IVY PACIFIC OPPORTUNITIES FUND.......................................5
IVY DEVELOPING MARKETS FUND..........................................8
IVY EUROPEAN OPPORTUNITIES FUND.....................................11
IVY GLOBAL FUND.....................................................14
IVY GLOBAL NATURAL RESOURCES FUND...................................17
IVY GLOBAL SCIENCE & TECHNOLOGY FUND................................20
IVY INTERNATIONAL VALUE FUND........................................23
IVY INTERNATIONAL SMALL COMPANIES FUND..............................26
RISK CONSIDERATIONS..........................................................29
EQUITY SECURITIES...................................................29
CONVERTIBLE SECURITIES..............................................29
SMALL COMPANIES.....................................................30
INITIAL PUBLIC OFFERINGS............................................30
NATURAL RESOURCES AND PHYSICAL COMMODITIES..........................31
DEBT SECURITIES.....................................................32
ILLIQUID SECURITIES.................................................35
FOREIGN SECURITIES..................................................36
DEPOSITORY RECEIPTS.................................................37
EMERGING MARKETS....................................................37
SECURITIES ISSUED IN PACIFIC REGION COUNTRIES.......................38
FOREIGN SOVEREIGN DEBT OBLIGATIONS..................................39
BRADY BONDS.........................................................40
FOREIGN CURRENCIES..................................................40
FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................41
OTHER INVESTMENT COMPANIES..........................................42
REPURCHASE AGREEMENTS...............................................42
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................42
COMMERCIAL PAPER....................................................43
BORROWING...........................................................43
WARRANTS............................................................43
REAL ESTATE INVESTMENT TRUSTS (REITs)...............................43
OPTIONS TRANSACTIONS................................................44
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................47
SECURITIES INDEX FUTURES CONTRACTS..................................50
COMBINED TRANSACTIONS...............................................52
PORTFOLIO TURNOVER...........................................................52
TRUSTEES AND OFFICERS........................................................53
PRINCIPAL HOLDERS OF SECURITIES..............................................59
INVESTMENT ADVISORY AND OTHER SERVICES.......................................67
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................67
DISTRIBUTION SERVICES...............................................70
CUSTODIAN...........................................................81
FUND ACCOUNTING SERVICES............................................81
TRANSFER AGENT AND DIVIDEND PAYING AGENT............................82
ADMINISTRATOR.......................................................82
AUDITORS............................................................83
BROKERAGE ALLOCATION.........................................................83
CAPITALIZATION AND VOTING RIGHTS.............................................85
SPECIAL RIGHTS AND PRIVILEGES................................................87
AUTOMATIC INVESTMENT METHOD.........................................87
EXCHANGE OF SHARES..................................................88
CONTINGENT DEFERRED SALES CHARGE SHARES.............................88
LETTER OF INTENT....................................................90
RETIREMENT PLANS....................................................91
REINVESTMENT PRIVILEGE..............................................95
RIGHTS OF ACCUMULATION..............................................95
SYSTEMATIC WITHDRAWAL PLAN..........................................95
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................96
REDEMPTIONS..................................................................97
CONVERSION OF CLASS B SHARES.................................................98
NET ASSET VALUE..............................................................99
TAXATION....................................................................100
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............101
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............102
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................103
DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................103
DISTRIBUTIONS......................................................104
DISPOSITION OF SHARES..............................................104
FOREIGN WITHHOLDING TAXES..........................................105
BACKUP WITHHOLDING.................................................106
PERFORMANCE INFORMATION.....................................................106
FINANCIAL STATEMENTS........................................................132
APPENDIX A..................................................................133
<PAGE>
GENERAL INFORMATION
Each Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. Ivy Asia Pacific Fund commenced operations
on January 1, 1997 (Class A, Class B and Class C shares). Ivy Pacific
Opportunities Fund commenced operations (Class A and Class B shares) on October
22, 1993; the inception dates for the Fund's Class C and Advisor Class shares
were April 30, 1996 and February 10, 1998, respectively. Ivy Developing Markets
Fund commenced operations (Class A and Class B shares) on November 1, 1994; the
inception dates for the Fund's Class C and Advisor Class shares were April 30,
1996 and April 30, 1998, respectively. Ivy European Opportunities Fund commenced
operations on May 3, 1999 (all Classes). Ivy Global Fund commenced operations
(Class A shares) on April 18, 1991; the inception dates for the Fund's Class B,
Class C and Advisor Class shares were April 1, 1994, April 30, 1996 and April
30, 1998, respectively. Ivy Global Natural Resources Fund and Ivy International
Small Companies Fund commenced operations on January 1, 1997 (Class A, Class B
and Class C shares); the inception dates for the Funds' Advisor Class shares
were April 18, 1999 and July 1, 1999, respectively. Ivy Global Science &
Technology Fund commenced operations on July 22, 1996 (Class A, Class B and
Class C shares); the inception date for the Fund's Advisor Class shares was
April 15, 1998. Ivy International Value Fund commenced operations on May 13,
1997 (Class A, Class B and Class C shares); the inception date for the Fund's
Advisor Class shares was February 23, 1998.
Descriptions in this SAI of a particular investment practice or
technique in which any Fund may engage or a financial instrument which any Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. For example, IMI may, in its discretion, at any time employ a given
practice, technique or instrument 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 a Fund would not use them. Investors should also be aware
that certain practices, techniques, or instruments could, regardless of their
relative importance in a Fund's overall investment strategy, from time to time
have a material impact on that Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each Fund's investment
techniques, are set forth below.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY ASIA PACIFIC FUND
The Fund's principal investment objective is long-term growth.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in
securities issued in Asia-Pacific countries, which for purposes of this SAI are
defined to include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam.
Securities of Asia-Pacific issuers include: (a) securities of companies
organized under the laws of an Asia-Pacific country or for which the principal
securities trading market is in the Asia-Pacific region; (b) securities that are
issued or guaranteed by the government of an Asia-Pacific country, its agencies
or instrumentalities, political subdivisions or the country's central bank; (c)
securities of a company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in the Asia-Pacific region; and (d)
any of the preceding types of securities in the form of depository shares.
The Fund may participate in markets throughout the Asia-Pacific region,
and it is expected that the Fund will be invested at all times in at least three
Asia-Pacific countries. Although it is permitted to, the Fund does not currently
anticipate investing in Japan. As a fundamental policy, the Fund does not
concentrate its investments in any particular industry.
The Fund may invest up to 35% of its assets in investment-grade debt
securities of government or corporate issuers in emerging market countries,
equity securities and investment grade debt securities of issuers in developed
countries (including the United States), warrants, and cash or cash equivalents,
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary defensive purposes, the Fund may invest without limit in such
instruments. The Fund may also invest up to 5% of its net assets in zero coupon
bonds, and in debt securities rated Ba or below by Moody's Investors Service,
Inc. ("Moody's") or BB or below by Standard & Poor's Ratings Services ("S&P"),
or if unrated, are considered by IMI to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in debt
securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, Ivy Asia Pacific Fund may borrow
from banks in accordance with the provisions of the Investment Company Act of
1940, as amended, (the "1940 Act"), but may not purchase securities at any time
during which the value of the Fund's outstanding loans exceeds 10% of the value
of the Fund's assets. The Fund may engage in foreign currency exchange
transactions and enter into forward foreign currency contracts. The Fund may
also invest in other investment companies that invest in securities issued in
Asia-Pacific countries in accordance with the provisions of the 1940 Act, and up
to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets are subject to being
purchased upon the exercise of the calls. The Fund may write or buy straddles or
spreads. For hedging purposes only, the Fund may engage in transactions in stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY ASIA PACIFIC FUND
Ivy Asia Pacific Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(ii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iii) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(iv) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(v) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vi) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(vii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
ADDITIONAL RESTRICTIONS FOR IVY ASIA PACIFIC FUND
Ivy Asia Pacific Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions
on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that the Fund may purchase shares of other investment
companies subject to such restrictions as may be imposed by the
Investment Company Act of 1940 and rules thereunder;
(iii) sell securities short, except for short sales "against the box";
(iv) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund"
total assets;
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account; or
(vi) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures.
IVY PACIFIC OPPORTUNITIES FUND
The Fund's principal investment objective is long-term capital growth.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in
securities issued in Pacific region countries, which for purposes of this SAI
are defined to include Australia, Bangladesh, Brunai, China, Hong Kong, India,
Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri
Lanka, South Korea, Taiwan, Thailand and Vietnam. Securities of Pacific region
issuers include: (a) securities of companies organized under the laws of a
Pacific region country or whose principal securities trading market is in the
Pacific region; (b) securities that are issued or guaranteed by the government
of a Pacific region country, its agencies or instrumentalities, political
subdivisions or the country's central bank; (c) securities of a company,
wherever organized, where at least 50% of the company's non-current assets,
capitalization, gross revenue or profit in any one of the two most recent fiscal
years represents (directly or indirectly through subsidiaries) assets or
activities located in the Pacific region; and (d) any of the preceding types of
securities in the form of depository shares.
The Fund may participate in markets throughout the Pacific region, and
it is expected that the Fund will be invested at all times in at least three
Pacific region countries. As a fundamental policy, the Fund does not concentrate
its investments in any particular industry.
The Fund may invest up to 35% of its assets in investment-grade debt
securities (i.e., those rated in the four highest rating categories used by
Moody's or S&P of government or corporate issuers in emerging market countries,
equity securities and investment-grade debt securities of issuers in developed
countries (including the United States), warrants, and cash or cash equivalents,
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary defensive purposes, the Fund may invest without limit in such
instruments. The Fund may also invest up to 5% of its net assets in zero coupon
bonds, and in debt securities rated Ba or below by Moody's or BB or below by
S&P, or if unrated, are considered by IMI to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in debt
securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, the Fund may borrow from banks in
accordance with the provisions of the 1940 Act, but may not purchase securities
at any time during which the value of the Fund's outstanding loans exceeds 10%
of the value of the Fund's total assets. The Fund may invest in sponsored or
unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts
("GDRs"), American Depository Shares ("ADSs), and Global Depository Shares
("GDSs), warrants, and securities issued on a "when-issued" or firm commitment
basis, and may engage in foreign currency exchange transactions and enter into
forward foreign currency contracts. The Fund may also invest in other investment
companies in accordance with the provisions of the 1940 Act, and up to 15% of
its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets are subject to being
purchased upon the exercise of the calls. The Fund may write or buy straddles or
spreads. For hedging purposes only, the Fund may engage in transactions in stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY PACIFIC OPPORTUNITIES FUND
Ivy Pacific Opportunities Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority (as defined in the 1940 Act) of
the outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus 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 FOR IVY PACIFIC OPPORTUNITIES FUND
Ivy Pacific Opportunities Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions
on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary purposes. The Fund may not
purchase securities at any time during which the value of the Fund's
outstanding loans exceeds 10% of the value of the Fund's total
assets;
(vii) purchase securities on margin, 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;
(viii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(ix) sell securities short, except for short sales "against the box"; or
(x) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any
securities (other than capital stock of the Fund), but such persons
or firms may act as brokers for the Fund for customary commissions
to the extent permitted by the Investment Company Act of 1940.
IVY DEVELOPING MARKETS FUND
Ivy Developing Markets Fund's principal objective is long-term growth.
Consideration of current income is secondary to this principal objective. In
pursuing its objective, the Fund invests primarily in the equity securities of
companies that IMI believes will benefit from the economic development and
growth of emerging markets. The Fund considers countries having emerging markets
to be those that (i) are generally considered to be "developing" or "emerging"
by the World Bank and the International Finance Corporation, or (ii) are
classified by the United Nations (or otherwise regarded by their authorities) as
"emerging." Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities (including common and preferred stocks,
convertible debt obligations, warrants, options (subject to the restrictions set
forth below), rights, and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs
that are listed on stock exchanges or traded over-the-counter) of "Emerging
Market growth companies," which are defined as companies (a) for which the
principal securities trading market is an emerging market (as defined above),
(b) that each (alone or on a consolidated basis) derives 50% or more of its
total revenue either from goods, sales or services in emerging markets, or (c)
that are organized under the laws of (and with a principal office in) an
emerging market country.
The Fund normally invests its assets in the securities of issuers
located in at least three emerging market countries, and may invest 25% or more
of its total assets in the securities of issuers located in any one country.
IMI's determination as to whether a company qualifies as an Emerging Market
growth company is based primarily on information contained in financial
statements, reports, analyses and other pertinent information (some of which may
be obtained directly from the company).
For purposes of capital appreciation, Ivy Developing Markets Fund may
invest up to 35% of its total assets in (i) debt securities of government or
corporate issuers in emerging market countries, (ii) equity and debt securities
of issuers in developed countries (including the United States), and (iii) cash
or cash equivalents such as bank obligations (including certificates of deposit
and bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary defensive purposes, the Fund may invest without limit
in such instruments. The Fund may also invest in zero coupon bonds and purchase
securities on a "when-issued" or firm commitment basis.
The Fund will not invest more than 20% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P.
For temporary or emergency purposes, the Fund may borrow from banks in
accordance with the provisions of the 1940 Act, but may not purchase securities
at any time during which the value of the Fund's outstanding loans exceeds 10%
of the value of the Fund's total assets. The Fund may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest in other investment companies in accordance with the
provisions of the 1940 Act, and up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY DEVELOPING MARKETS FUND
Ivy Developing Markets Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus 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 FOR IVY DEVELOPING MARKETS FUND
Unless otherwise indicated, Ivy Developing Markets Fund has adopted the
following additional restrictions, which are not fundamental and which may be
changed without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any
securities (other than capital stock of the Fund), but such persons
or firms may act a brokers for the Fund for customary commissions to
the extent permitted by the Investment Company Act of 1940.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restrictions (v) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY EUROPEAN OPPORTUNITIES FUND
The Fund's investment objective is long-term capital growth by
investing in the securities markets of Europe. The Fund's subadviser, Henderson
Investment Management Limited ("Henderson"), will invest the Fund's assets in
the securities of European companies, including those companies operating in the
emerging markets of Europe and small capitalization companies operating in the
developed markets of Europe. The Fund may also invest in larger capitalization
European companies and European companies which have been subject to special
circumstances, e.g., privatized companies or companies which provide exceptional
value. Although the majority of the Fund's assets will be invested in equity
securities, the Fund may also invest in cash, short-term or long-term fixed
income securities issued by corporations and governments of Europe if considered
appropriate in relation to the then current economic or market conditions in any
country.
The Fund seeks to achieve its investment objective by investing
primarily in the equity securities of companies domiciled or otherwise doing
business (as described below) in European countries. Under normal circumstances,
the Fund will invest at least 65% of its total assets in the equity securities
of "European companies," which include any issuer (a) that is organized under
the laws of a European country; (b) that derives 50% or more of its total
revenues from goods produced or sold, investments made or services performed in
Europe; or (c) for which the principal trading market is in Europe. The equity
securities in which the Fund may invest include common stock, preferred stock
and common stock equivalents such as warrants and convertible debt securities.
These may include securities issued pursuant to initial public offerings
("IPOs"). The Fund may engage in short-term trading. The Fund may also invest in
sponsored or unsponsored ADRs, EDRs, GDRs, ADSs, EDSs and GDSs. The Fund does
not expect to concentrate its investments in any particular industry.
The Fund may invest up to 35% of its net assets in debt securities, but
will not invest more than 20% of its net assets in debt securities rated Ba or
below by Moody's or BB or below by S&P or, if unrated, considered by Henderson
to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P. The Fund may purchase Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring their
sovereign debt. The Fund may also purchase securities on a "when-issued" or firm
commitment basis, engage in foreign currency exchange transactions and enter
into forward foreign currency contracts. In addition, the Fund may invest up to
5% of its net assets in zero coupon bonds.
For temporary defensive purposes or when Henderson believes that
circumstances warrant, the Fund may invest without limit in U.S. Government
securities, investment grade debt securities (i.e., those rated Baa or higher by
Moody's or BBB or higher by S&P or, if unrated, considered by Henderson to be of
comparable quality), warrants, and cash or cash equivalents such as domestic or
foreign bank obligations (including certificates of deposit, time deposits and
bankers' acceptances), short-term notes, repurchase agreements, and domestic or
foreign commercial paper.
The Fund may borrow money in accordance with the provisions of the 1940
Act. The Fund may also invest in other investment companies in accordance with
the provisions of the 1940 Act, and may invest up to 15% of its net assets in
illiquid securities.
For hedging purposes, the Fund may purchase put and call options on
securities and stock indices, provided the premium paid for such options does
not exceed 5% of the Fund's net assets. The Fund may also sell covered put
options with respect to up to 10% of the value of its net assets, and may write
covered call options so long as not more than 25% of the Fund's net assets are
subject to being purchased upon the exercise of the calls.
For hedging purposes only, the Fund may engage in transactions in (and
options on) stock index, interest rate and foreign currency futures contracts,
provided that the Fund's equivalent exposure in such contracts does not exceed
15% of its total assets. The Fund may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND
Ivy European Opportunities Fund's investment objective, as set forth in
the Prospectus under "Investment Objective and Policies," and the investment
restrictions set forth below are fundamental policies of the Fund and may not be
changed with respect to the approval of a majority (as defined in the 1940 Act)
of the outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
ADDITIONAL RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND
Ivy European Opportunities Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in the subadviser's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market or to
other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(iii) purchase or sell real estate limited partnership interests;
(iv) sell securities short, except for short sales "against the box";
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
subadviser, for the sale or purchase of portfolio securities shall
not be considered participation in a joint securities trading
account;
(vi) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(vii) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(viii) invest in interests in oil, gas and/or mineral exploration or
development programs (other than securities of companies that invest
in or sponsor such programs).
IVY GLOBAL FUND
Ivy Global Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and governments
of any nation. Any income realized will be incidental. Under normal conditions,
the Fund will invest at least 65% of its total assets in the common stock of
companies throughout the world, with at least three different countries (one of
which may be the United States) represented in the Fund's overall portfolio
holdings. Although the Fund generally invests in common stock, it may also
invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs,
and investment-grade debt securities (i.e., those rated Baa or higher by Moody's
or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable
quality), including corporate bonds, notes, debentures, convertible bonds and
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P.
The Fund may invest in equity real estate investment trusts, warrants,
and securities issued on a "when-issued" or firm commitment basis, and may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest in other investment companies in
accordance with the provisions of the 1940 Act, and may invest up to 15% of its
net assets in illiquid securities. The Fund may not invest more than 5% of its
total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, Ivy Global Fund may invest without limit in U.S.
Government securities, obligations issued by domestic or foreign banks
(including certificates of deposit, time deposits and bankers' acceptances), and
domestic or foreign commercial paper (which, if issued by a corporation, must be
rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a
company that at the time of investment has an outstanding debt issue rated Aaa
or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices, provided
the premium paid for such options does not exceed 10% of the Fund's net assets.
The Fund may also sell covered put options with respect to up to 50% of the
value of its net assets, and may write covered call options so long as not more
than 20% of the Fund's net assets is subject to being purchased upon the
exercise of the calls. The Fund may also write and buy straddles and spreads.
For hedging purposes only, the Fund may engage in transactions in (and options
on) stock index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority of the outstanding voting shares of the Fund. The Fund
has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development
programs;
(iv) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(v) make investments in securities for the purpose of exercising control
over or management of the issuer;
(vi) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Manager for
the sale or purchase of portfolio securities shall not be considered
participation in a joint securities trading account;
(vii) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a
temporary measure for extraordinary or emergency purposes. All
borrowings will be repaid before any additional investments are
made;
(viii) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities restricted as to disposition under the Federal securities
laws; or
(ix) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or
acquisition of assets, and except that the Fund may invest in
securities of other investment companies subject to the restrictions
in Section 12(d)(1) of the Investment Company Act of 1940.
The Fund does not interpret fundamental restriction (v) to prohibit
investment in real estate investment trusts.
IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objective is long-term
growth. Any income realized will be incidental. Under normal conditions, the
Fund invests at least 65% of its total assets in the equity securities of
companies throughout the world that own, explore or develop natural resources
and other basic commodities, or supply goods and services to such companies.
Under this investment policy, at least three different countries (one of which
may be the United States) will be represented in the Fund's overall portfolio
holdings. "Natural resources" generally include precious metals (such as gold,
silver and platinum), ferrous and nonferrous metals (such as iron, aluminum and
copper), strategic metals (such as uranium and titanium), coal, oil, natural
gases, timber, undeveloped real property and agricultural commodities. Although
the Fund generally invests in common stock, it may also invest in preferred
stock, securities convertible into common stock and sponsored or unsponsored
ADRs, GDRs, ADSs and GDSs. The Fund may also invest directly in precious metals
and other physical commodities. In selecting the Fund's investments, MFC will
seek to identify securities of companies that, in MFC's opinion, appear to be
undervalued relative to the value of the companies' natural resource holdings.
MFC believes that certain political and economic changes in the global
environment in recent years have had and will continue to have a profound effect
on global supply and demand of natural resources, and that rising demand from
developing markets and new sources of supply should create attractive investment
opportunities. In selecting the Fund's investments, MFC will seek to identify
securities of companies that, in MFC's opinion, appear to be undervalued
relative to the value of the companies' natural resource holdings.
For temporary defensive purposes, Ivy Global Natural Resources Fund may
invest without limit in cash or cash equivalents, such as bank obligations
(including certificates of deposit and bankers' acceptances), commercial paper,
short-term notes and repurchase agreements. For temporary or emergency purposes,
the Fund may borrow from banks in accordance with the provisions of the 1940
Act, but may not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total assets.
The Fund may engage in foreign currency exchange transactions and enter into
forward foreign currency contracts. The Fund may also invest in other investment
companies in accordance with the provisions of the 1940 Act, and may invest up
to 15% of its net assets in illiquid securities.
For hedging purposes only, the Fund may engage in transactions in (and
options on) foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
The Fund may also write or buy puts, calls, straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objectives as set forth
in the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
(a) commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI and (b) commodities
relating to natural resources, as described in the Prospectus and
this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the 1940 Act and
rules thereunder;
(iii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iv) invest in interests in oil, gas and/or mineral exploration or
development programs;
(v) sell securities short, except for short sales "against the box;"
(vi) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund"
total assets;
(vii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(viii) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures; or
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's principal investment objective
is long-term capital growth. Any income realized will be incidental. Under
normal conditions, the Fund will invest at least 65% of its total assets in the
common stock of companies that are expected to benefit from the development,
advancement and use of science and technology. Under this investment policy, at
least three different countries (one of which may be the United States) will be
represented in the Fund's overall portfolio holdings. Industries likely to be
represented in the Fund's portfolio include computers and peripheral products,
software, electronic components and systems, telecommunications, media and
information services, pharmaceuticals, hospital supply and medical devices,
biotechnology, environmental services, chemicals and synthetic materials, and
defense and aerospace. The Fund may also invest in companies that are expected
to benefit indirectly from the commercialization of technological and scientific
advances. In recent years, rapid advances in these industries have stimulated
unprecedented growth. While this is no guarantee of future performance, IMI
believes that these industries offer substantial opportunities for long-term
capital appreciation. Investments made by the Fund may include securities issued
pursuant to IPOs. The Fund may also engage in short-term trading.
Although the Fund generally invests in common stock, it may also invest
in preferred stock, securities convertible into common stock, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), including corporate
bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may
also invest up to 5% of its net assets in debt securities that are rated Ba or
below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
The Fund may invest in warrants, purchase securities on a "when-issued"
or firm commitment basis, engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. The Fund may also invest (i) in
other investment companies in accordance with the provisions of the 1940 Act and
(ii) up to 15% of its net assets in illiquid securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, Ivy Global Science & Technology Fund may invest
without limit in U.S. Government securities, obligations issued by domestic or
foreign banks (including certificates of deposit, time deposits and bankers'
acceptances), and domestic or foreign commercial paper (which, if issued by a
corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has
been issued by a company that at the time of investment has an outstanding debt
issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter
into repurchase agreements, and, for temporary or emergency purposes, may borrow
up to 10% of the value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell covered
put options with respect to up to 50% of the value of its net assets, and may
write covered call options so long as not more than 20% of the Fund's net assets
is subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of the value of its
total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's investment objective, as set
forth in the "Summary" section of the Prospectus, and the investment
restrictions set forth below are fundamental policies of the Fund and may not be
changed without the approval of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting shares. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control or
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that a Fund has written, securities for which market
quotations are not readily available, or other securities which
legally or in IMI's opinion, subject to the Board's supervision, may
be deemed illiquid, but shall not include any instrument that, due
to the existence of a trading market, to the Fund's compliance with
certain conditions intended to provide liquidity, or to other
factors, is liquid;
(v) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a
temporary measure for emergency purposes.
(vi) purchase securities on margin;
(vii) sell securities short, except for short sales "against the box"; or
(viii) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any
securities (other than capital stock of the Fund), but such persons
or firms may act as brokers for the Fund for customary commissions
to the extent permitted by the 1940 Act.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (v) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY INTERNATIONAL VALUE FUND
Ivy International Value Fund's principal objective is long-term capital
growth primarily through investment in equity securities. Consideration of
current income is secondary to this principal objective. It is anticipated that
at least 65% of the Fund's total assets will be invested in common stocks (and
securities convertible into common stocks) principally traded in European,
Pacific Basin and Latin American markets. Under this investment policy, at least
three different countries (other than the United States) will be represented in
the Fund's overall portfolio holdings. For temporary defensive purposes, the
Fund may also invest in equity securities principally traded in U.S. markets.
IMI, the Fund's investment manager, invests the Fund's assets in a variety of
economic sectors, industry segments and individual securities in order to reduce
the effects of price volatility in any one area and to enable shareholders to
participate in markets that do not necessarily move in concert with U.S.
markets. IMI seeks to identify rapidly expanding foreign economies, and then
searches out growing industries and corporations, focusing on companies with
established records. Individual securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength. Companies in which investments are made will generally have
at least $1 billion in capitalization and a solid history of operations.
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities (i.e.,
those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated,
considered by IMI to be of comparable quality), preferred stocks, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary or emergency purposes, the Fund may borrow up to 10% of the value of
its total assets from banks. The Fund may also purchase securities on a
"when-issued" or firm commitment basis, and may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest in other investment companies in accordance with the
provisions of the 1940 Act and up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets are subject to being
purchased upon the exercise of the calls. For hedging purposes only, the Fund
may engage in transactions in (and options on) stock index and foreign currency
futures contracts, provided that the Fund's equivalent exposure in such
contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL VALUE FUND
Ivy International Value Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
ADDITIONAL RESTRICTIONS FOR IVY INTERNATIONAL VALUE FUND
Ivy International Value 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.
Ivy International Value Fund will continue to interpret fundamental
investment restriction (v) above to prohibit investment in real estate limited
partnership interests; this restriction shall not, however, prohibit investment
in readily marketable securities of companies that invest in real estate or
interests therein, including real estate investment trusts.
Under the Investment Company Act of 1940, the Fund is permitted,
subject to its investment restrictions, to borrow money only from banks. The
Trust has no current intention of borrowing amounts in excess of 5% of the
Fund's assets.
IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's principal investment objective
is long-term growth primarily through investment in foreign equity securities.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in common
and preferred stocks (and securities convertible into common stocks) of foreign
issuers having total initial market capitalization of less than $2 billion.
Under this investment policy, at least three different countries (other than the
United States) will be represented in the Fund's overall portfolio holdings. For
temporary defensive purposes, the Fund may also invest in equity securities
principally traded in the United States. The Fund will invest its assets in a
variety of economic sectors, industry segments and individual securities in
order to reduce the effects of price volatility in any area and to enable
shareholders to participate in markets that do not necessarily move in concert
with the U.S. market. The factors that IMI considers in determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships. The Fund may purchase securities issued pursuant to IPOs. The
Fund may engage in short-term trading.
In selecting the Fund's investments, IMI will seek to identify
securities that are attractively priced relative to their intrinsic value. The
intrinsic value of a particular security is analyzed by reference to
characteristics such as relative price-earnings ratio, dividend yield and other
relevant factors (such as applicable financial, tax, social and political
conditions).
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities, zero
coupon bonds, preferred stocks, warrants, or cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. The Fund may also
invest up to 5% of its net assets in debt securities rated Ba or below by
Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of
comparable quality (commonly referred to as "high yield" or "junk" bonds). The
Fund will not invest in debt securities rated less than C by either Moody's or
S&P.
For temporary or emergency purposes, Ivy International Small Companies
Fund may borrow from banks in accordance with the provisions of the 1940 Act,
but may not purchase securities at any time during which the value of the Fund's
outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest in other investment companies in
accordance with the provisions of the 1940 Act, and may invest up to 15% of its
net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index and foreign currency futures contracts, provided
that the Fund's equivalent exposure in such contracts does not exceed 15% of its
total assets. The Fund may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's investment objectives as set
forth in the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time
to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
ADDITIONAL RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval, to the extent permitted by applicable law,
regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other
than securities of companies that invest in or sponsor such
programs);
(iii) invest in oil, gas and/or mineral exploration or development
programs;
(iv) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions
on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(v) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets;
(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that the Fund may purchase shares of other investment
companies subject to such restrictions as may be imposed by the 1940
Act and rules thereunder;
(vii) sell securities short, except for short sales "against the box;"
(viii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(x) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures.
RISK CONSIDERATIONS
EQUITY SECURITIES
Equity securities can be issued by companies to raise cash; all equity
securities 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 each Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can
experience an immediate drop in value if the demand for the securities does not
continue to support the offering price. Information about the issuers of IPO
securities is also difficult to acquire since they are new to the market and may
not have lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
NATURAL RESOURCES AND PHYSICAL COMMODITIES
Since Ivy Global Natural Resources Fund normally invests a substantial
portion of its assets in securities of companies engaged in natural resources
activities, that Fund may be subject to greater risks and market fluctuations
than funds with more diversified portfolios. The value of the Fund's securities
will fluctuate in response to market conditions generally, and will be
particularly sensitive to the markets for those natural resources in which a
particular issuer is involved. The values of natural resources may also
fluctuate directly with respect to real and perceived inflationary trends and
various political developments. In selecting the Fund's portfolio of
investments, MFC will consider each company's ability to create new products,
secure any necessary regulatory approvals, and generate sufficient customer
demand. A company's failure to perform well in any one of these areas, however,
could cause its stock to decline sharply.
Natural resource industries throughout the world may be subject to
greater political, environmental and other governmental regulation than many
other industries. Changes in governmental policies and the need for regulatory
approvals may have an adverse effect on the products and services of natural
resources companies. For example, the exploration, development and distribution
of coal, oil and gas in the United States are subject to significant Federal and
state regulation, which may affect rates of return on such investments and the
kinds of services that may be offered to companies in those industries. In
addition, many natural resource companies have been subject to significant costs
associated with compliance with environmental and other safety regulations. Such
regulations may also hamper the development of new technologies. The direction,
type or effect of any future regulations affecting natural resource industries
are virtually impossible to predict.
Ivy Global Natural Resources Fund's investments in precious metals
(such as gold) and other physical commodities are considered speculative and
subject to special risk considerations, including substantial price fluctuations
over short periods of time. On the other hand, investments in precious metals
coins or bullion could help to moderate fluctuations in the value of the Fund's
portfolio, since the prices of precious metals have at times tended not to
fluctuate as widely as shares of issuers engaged in the mining of precious
metals. Because precious metals and other commodities do not generate investment
income, however, the return on such investments will be derived solely from the
appreciation and depreciation on such investments. The Fund may also incur
storage and other costs relating to its investments in precious metals and other
commodities, which may, under certain circumstances, exceed custodial and
brokerage costs associated with investments in other types of securities. When
the Fund purchases a precious metal, MFC currently intends that it will only be
in a form that is readily marketable. Under current U.S. tax law, the Fund may
not receive more than 10% of its yearly income from gains resulting from selling
precious metals or any other physical commodity. Accordingly, the Fund may be
required to hold its precious metals or sell them at a loss, or to sell its
portfolio securities at a gain, when for investment reasons it would not
otherwise do so.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's 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). Each Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in the Fund's portfolio,
could adversely affect the price at which a Fund could sell such securities, and
cause large fluctuations in the daily net asset value of a Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of each Fund to retain or dispose of such security. However, should any
individual bond held by any Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include: (1)
direct obligations of the U.S. Treasury (such as Treasury bills, notes, and
bonds) and (2) Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations in
market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize
income currently for Federal income tax purposes in the amount of the unpaid,
accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in a Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of each Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which the
Fund is permitted or able to sell such security, the Fund might obtain a price
less favorable than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted securities, a
Fund may be required to bear all or part of the registration expenses. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, 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 each Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in each Fund's domestic investments.
Although IMI intends to invest each Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
Each Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict each Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of each Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, each Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to each Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
each Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
each Fund's cash and securities, each Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
SECURITIES ISSUED IN PACIFIC REGION COUNTRIES
Certain Pacific region countries in which Ivy Asia Pacific Fund and Ivy
Pacific Opportunities Fund are likely to invest are developing countries, and
may be in the initial stages of their industrialization cycle. The economic
structures of developing countries generally are less diverse and mature than in
the United States, and their political systems may be relatively unstable.
Historically, markets of developing countries have been more volatile than the
markets of developed countries, yet such markets often have provided higher
rates of return to investors.
Investing in securities of issuers in Pacific region countries involves
certain considerations not typically associated with investing in securities
issued in the United States or in other developed countries, including (i)
restrictions on foreign investment and on repatriation of capital invested in
Asian countries, (ii) currency fluctuations, (iii) the cost of converting
foreign currency into United States dollars, (iv) potential price volatility and
lesser liquidity of shares traded on Pacific region securities markets and (v)
political and economic risks, including the risk of nationalization or
expropriation of assets and the risk of war.
Certain Pacific region countries may be more vulnerable to the ebb and
flow of international trade and to trade barriers and other protectionist or
retaliatory measures. Investments in countries that have recently opened their
capital markets and that appear to have relaxed their central planning
requirement, as well as in countries that have privatized some of their
state-owned industries, should be regarded as speculative.
The settlement period of securities transactions in foreign markets in
general may be longer than in domestic markets, and such delays may be of
particular concern in developing countries. For example, the possibility of
political upheaval and the dependence on foreign economic assistance may be
greater in developing countries than in developed countries, either one of which
may increase settlement delays.
Securities exchanges, issuers and broker-dealers in some Pacific region
countries are subject to less regulatory scrutiny than in the United States. In
addition, due to the limited size of the markets for Pacific region securities,
the prices for such securities may be more vulnerable to adverse publicity,
investors' perceptions or traders' positions or strategies, which could cause a
decrease not only in the value but also in the liquidity of a Fund's
investments.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
BRADY BONDS
Ivy European Opportunities Fund may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings have been implemented to date in Argentina,
Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico,
Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, each Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of each Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and each Fund may incur costs in connection with
conversions between various currencies. Although each Fund's custodian values
the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
Each Fund will do so from time to time, however, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because each Fund normally will be invested in both U.S. and foreign
securities markets, changes in each Fund's share price may have a low
correlation with movements in U.S. markets. Each Fund's share price will reflect
the movements of the different stock and bond markets in which it is invested
(both U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of each Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. Currencies in which
each Fund's assets are denominated may be devalued against the U.S. dollar,
resulting in a loss to each Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by that Fund. An imperfect correlation of this type may
prevent a Fund from achieving the intended hedge or expose the Fund to the risk
of currency exchange loss.
Each Fund may purchase currency forwards and combine such purchases
with sufficient cash or short-term securities to create unleveraged substitutes
for investments in foreign markets when deemed advantageous. Each Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
Each Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which that Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, a Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). Each Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, each Fund is permitted to enter into
repurchase agreements only if the repurchase agreements are at least fully
collateralized with U.S. Government securities or other securities that IMI has
approved for use as collateral for repurchase agreements and the collateral must
be marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, a Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. Each Fund may invest in commercial paper that is rated Prime-1 by
Moody's 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 each Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by any Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITs)
A REIT is a corporation, trust or association that invests in real
estate mortgages or equities for the benefit of its investors. REITs are
dependent upon management skill, may not be diversified and are subject to the
risks of financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through Ivy Global Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded option wishes to terminate the
obligation, the writer may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the Options Clearing Corporation. However, a writer may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate his
or her position by effecting a "closing sale transaction." This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected at any particular time or at any acceptable price.
If any call or put option is not exercised or sold, it will become worthless on
its expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligations in an OTC transaction, Fund
would need to negotiate directly with the counterparty.
Each Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by that Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that a Fund has written lapses unexercised, because the Fund would
retain the premium. Any such gains (or losses) are considered short-term capital
gains (or losses) for Federal income tax purposes. Net short-term capital gains,
when distributed by each Fund, are taxable as ordinary income. See "Taxation."
Each Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by that Fund if the
premium, less commission costs, received by the Fund on the sale of the call or
the put is greater (or less) than the premium, plus commission costs, paid by
the Fund to purchase the call or the put. If a put or a call expires
unexercised, it will become worthless on the expiration date, and the Fund will
realize a loss in the amount of the premium paid, plus commission costs. Any
such gain or loss will be long-term or short-term gain or loss, depending upon
the Fund's holding period for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by each Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When a Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may write (sell)
covered call options on each Fund's securities in an attempt to realize a
greater current return than would be realized on the securities alone. Each Fund
may also write covered call options to hedge a possible stock or bond market
decline (only to the extent of the premium paid to the Fund for the options). In
view of the investment objectives of each Fund, each Fund generally would write
call options only in circumstances where the investment adviser to the Fund does
not anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a Fund is
obligated as the writer of a call option, that Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although a
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, a Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as a Fund remains
obligated as a writer of a call option, it forgoes the opportunity to profit
from increases in the market price of the underlying security above the exercise
price of the option, except insofar as the premium represents such a profit (and
retains the risk of loss should the value of the underlying security decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may purchase a
put option on an underlying security owned by that Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
Each Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that a Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by any Fund for leverage purposes.
Each Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. A Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. Each Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by a Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may be able
to offset to some extent any adverse effects of being unable to liquidate an
option position, a Fund may experience losses in some cases as a result of such
inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in each Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the
level of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by a Fund, that Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, each Fund generally
realizes a capital gain, or if it is more, the Fund generally realizes a capital
loss. Conversely, if an offsetting sale price is more than the original purchase
price, each Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
When purchasing a futures contract, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
each Fund may "cover" its position by purchasing a put option on the same
futures contract with a strike price as high as or higher than the price of the
contract held by the Fund, or, if lower, may cover the difference with cash or
short-term securities.
When selling a futures contract, each Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, each Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, a Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, each Fund will
maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
Each Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. Each Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
Each Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. Each Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in a Fund's portfolio securities being hedged. In addition,
there are significant differences between the securities and futures markets
that could result in an imperfect correlation between the markets, causing a
given hedge not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund (except Ivy Global Natural Resources Fund) may enter into
securities index futures contracts as an efficient means of regulating the
Fund's exposure to the equity markets. Each Fund will not engage in transactions
in futures contracts for speculation, but only as a hedge against changes
resulting from market conditions in the values of securities held in the Fund's
portfolio or which it intends to purchase. An index futures contract is a
contract to buy or sell units of an index at a specified future date at a price
agreed upon when the contract is made. Entering into a contract to buy units of
an index is commonly referred to as purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. The
value of a unit is the current value of the stock index. For example, the S&P
500 Index is composed of 500 selected common stocks, most of which are listed on
the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative
weightings to the 500 common stocks included in the Index, and the Index
fluctuates with changes in the market values of the shares of those common
stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500
units. Thus, if the value of the S&P 500 Index were $150, one contract would be
worth $75,000 (500 units x $150). The index futures contract specifies that no
delivery of the actual securities making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and the actual level
of the stock index at the expiration of the contract. For example, if a Fund
enters into a futures contract to buy 500 units of the S&P 500 Index at a
specified future date at a contract price of $150 and the S&P 500 Index is at
$154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If
a Fund enters into a futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 Index is at
$154 on that future date, the Fund will lose $2,000 (500 units x loss of $4).
Each Fund's success in using hedging techniques depends, among other
things, on IMI's ability to predict correctly the direction and volatility of
price movements in the futures and options markets as well as in the securities
markets and to select the proper type, time and duration of hedges. The skills
necessary for successful use of hedges are different from those used in the
selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each Fund
will bear the risk that the prices of the securities being hedged will not move
in the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although each Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when a Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
a Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, a Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, a Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss. The transaction costs must
also be included in these calculations.
Each Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. Each
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a Fund may "cover" its position by purchasing a put option on the
same futures contract with a strike price as high as or higher than the price of
the contract held by the Fund.
When selling an index futures contract, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with an FCM as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, a
Fund may "cover" its position by owning the instruments underlying the contract
(or, in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS
Each Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions and multiple currency
transactions (including forward currency contracts) and some combination of
futures, options, and currency transactions ("component" transactions), instead
of a single transaction, as part of a single or combined strategy when, in the
opinion of IMI, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on IMI's judgment that the combined strategies will reduce risk or
otherwise more effectively achieve the desired portfolio management goal, it is
possible that the combination will instead increase such risks or hinder
achievement of the management objective.
PORTFOLIO TURNOVER
Each Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. 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, each Fund
may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by a Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
Each Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining each Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
The portfolio turnover rate for Ivy Asia Pacific Fund was significantly
higher in 1999 than it was in 1998 because of a significant increase in the
performance of the Hong Kong market in 1999. The portfolio turnover rate for Ivy
Global Natural Resources Fund was significantly higher in 1999 than it was in
1998 because of a significant increase in the sale of shares of that Fund. The
portfolio turnover rate for Ivy International Small Companies Fund was
significantly higher in 1999 than it was in 1998 because of a significant
increase in the net assets of that Fund.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Frontage Road Corp. (instruments and
Wilmington, MA 01810 controls); Director,
Age: 76 Burr-Brown Corp.
(operational amplifiers);
Director, Mass. High Tech.
Council; Trustee of
Mackenzie Series Trust
(1992-1998).
James W. Broadfoot* President and Trustee President, Ivy Management,
700 South South Inc. (1997 - present);
Federal Highway Executive Vice President,
Suite 300 Ivy Management, Inc.
Boca Raton, FL 33432 (1996-1997); Senior Vice
Age: 57 President, Ivy Management,
Inc. (1992-1996); Director
and Senior Vice President,
Mackenzie Investment Manage-
ment Inc. (1995-present);
Senior Vice President,
Mackenzie Investment Manage-
ment Inc. (1990-1995);
President and Trustee,
Mackenzie Solutions
(1999-2000).
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: 76 Chairman, Broyhill
Investments, Inc.
(1997-present); Chairman and
President, Broyhill
Investments, Inc.
(1983-1997); Chairman,
Broyhill Timber Resources
(1983-present); Management
of a personal portfolio of
fixed-income and equity
instruments (1983-present);
Trustee of Mackenzie Series
Trust (1988-1998); Director
of The Mackenzie Funds Inc.
(1988-1995).
Keith J. Carlson* Chairman and Trustee President, Chief Executive
700 South Federal Hwy. Officer and Director,
Suite 300 Mackenzie Investment
Boca Raton, FL 33432 Management Inc.
Age: 43 (1999-present); Executive
Vice President and Chief
Operating Officer, Mackenzie
Investment Management Inc.
(1997-1999); Senior Vice
President, Mackenzie
Investment Management Inc.
(1996-1997); Senior Vice
President and Director,
Mackenzie Investment
Management Inc. (1994-1996);
Chairman, Senior Vice
President and Director, Ivy
Management, Inc.
(1994-present); Vice
President, The Mackenzie
Funds Inc. (1987-1995);
Director, Ivy Mackenzie
Services Corp.
(1993-present); Senior Vice
President and Director, Ivy
Mackenzie Services Corp.
(1996-1997); President and
Director, Ivy Mackenzie
Services Corp. (1993-1996);
Trustee and President,
Mackenzie Series Trust
(1996-1998); Vice President,
Mackenzie Series Trust
(1994-1996); President,
Chief Executive Officer and
Director, Ivy Mackenzie
Distributors, Inc.
(1994-present); Chairman,
Trustee and Principal
Executive Officer, Mackenzie
Solutions (1999-2000);
President and Trustee,
Mackenzie Solutions (1999).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 76 (insurance agency);
Chairman, Scott Management
Company (administrative
services for insurance
companies); President, The
Channick Group (consultants
to insurance companies and
national trade
associations); Trustee,
Mackenzie Series Trust
(1994-1998); Director, The
Mackenzie Funds Inc.
(1994-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory of Physics Physics, Harvard University
Harvard University (1974-present); Trustee.
Cambridge, MA 02138 Mackenzie Series Trust
Age: 74 (1994-1998).
Dianne Lister Trustee President and Chief
555 University Avenue Executive Officer, The
Toronto, Ontario Canada Hospital for Sick Children
M5G 1X8 Foundation (1993-present).
Age: 47
Joseph G. Rosenthal Trustee Chartered Accountant (1958-
100 Jardine Drive present); Trustee, Mackenzie
Unit #12 Series Trust (1985-1998);
Concord, Ontario Canada Director, The Mackenzie Funds
L4K 2T7 Inc. (1987-1995).
Age: 65
Richard N. Silverman Trustee Honorary Trustee,
18 Bonnybrook Road Newton-Wellesley Hospital;
Waban, MA 02468 Overseer, Beth Israel
Age: 76 Hospital; Trustee, Boston
Ballet; Overseer, Boston
Children's Museum; Trustee,
Ralph Lowell Society WGBH;
Trustee, Newton Wellesley
Charitable Foundation.
J. Brendan Swan Trustee Chairman and Chief Executive
4701 North Federal Hwy. Officer, Airspray
Suite 465 International, Inc.; Joint
Pompano Beach, FL 33064 Managing Director, Airspray
Age: 70 N.V (an environmentally
sensitive packaging
company); Director,
Polyglass LTD.; Director,
Park Towers International;
Director, The Mackenzie
Funds Inc. (1992-1995);
Trustee, Mackenzie Series
Trust (1992-1998).
Edward M. Tighe Trustee Chief Executive Officer,
P.O. Box 2160 CITCO Technology Management,
Ft. Lauderdale, FL 33303 inc. ("CITCO") (computer
Age: 57 software development and
consulting) (1999-2000);
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/Trustee Senior Vice President,
700 South Federal Hwy. Secretary/Treasurer and
Suite 300 Compliance Officer,
Boca Baton, FL 33432 Mackenzie Investment
Age: 55 Management Inc.
(2000-present); Senior Vice
President, Chief Financial
Officer Secretary/Treasurer
and Compliance Officer,
Mackenzie Investment
Management Inc. (1995-2000);
Senior Vice President,
Secretary/Treasurer,
Compliance Officer and
Clerk, Ivy Management, Inc.
(1994-present); Senior Vice
President,
Secretary/Treasurer and
Director, Ivy Mackenzie
Distributors, Inc.
(1994-present); Director,
President and Chief
Executive Officer, Ivy
Mackenzie Services Corp.
(1997-present); President
and Director, Ivy Mackenzie
Services Corp. (1996-1997);
Secretary/Treasurer and
Director, Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer, The
Mackenzie Funds Inc.
(1993-1995);
Secretary/Treasurer,
Mackenzie Series Trust
(1994-1998);
Secretary/Treasurer,
Mackenzie Solutions
(1999-2000).
* Deemed to be an "interested person" (as defined under the 1940 Act) of the
Trust.
<PAGE>
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1999)
PENSION OR TOTAL COMPEN-
AGGREGATE RETIREMENT ESTIMATED SATION FROM
COMPEN- BENEFITS ANNUAL TRUST AND
SATION ACCRUED AS BENEFITS FUND COMPLEX
FROM PART OF FUND UPON PAID TO
NAME, POSITION TRUST EXPENSES RETIREMENT TRUSTEES*
John S. Anderegg, Jr.
(Trustee) $21,500 N/A N/A $21,500
James W. Broadfoot $0 N/A N/A $0
(Trustee and President)
Paul H. Broyhill $20,500 N/A N/A $20,500
(Trustee)
Keith J. Carlson $0 N/A N/A $0
(Trustee and Chairman)
Stanley Channick $21,500 N/A N/A $21,500
(Trustee)
Roy J. Glauber $21,500 N/A N/A $21,500
(Trustee)
Dianne Lister $0 N/A N/A $0
(Trustee)
Joseph G. Rosenthal $21,500 N/A N/A $21,500
(Trustee)
Richard N. Silverman $21,500 N/A N/A $21,500
(Trustee)
J. Brendan Swan $21,500 N/A N/A $21,500
(Trustee)
Edward M. Tighe $ 1,000 N/A N/A $ 1,000
(Trustee)
C. William Ferris $0 N/A N/A $0
(Secretary/
Treasurer)
* The Fund complex consists of Ivy Fund.
As of April 6, 2000, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the eighteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 1.02% and 1.25% of Ivy European Opportunities Fund and Ivy
Global Science & Technology Fund Class A shares, respectively, and 1.13%, 5.98%,
2.05% and 3.00% of Ivy European Opportunities Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, and Ivy US Emerging Growth Fund
Advisor Class shares, respectively.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI, HENDERSON, MFC AND THE
TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business
Conduct Policy, MFC has adopted a Business Conduct Policy for Officers,
Directors and Access Persons and Henderson has incorporated a code of ethics
into its Compliance and Procedures Manual (the "Codes of Ethics") which are each
designed to identify and address certain conflicts of interest between personal
investment activities and the interests of investment advisory clients such as
each Fund, in compliance with Rule 17j-1 under the 1940 Act. The Codes of Ethics
permit personnel of IMI, IMDI, Henderson, MFC and the Trust subject to the Codes
of Ethics to engage in personal securities transactions, including with respect
to securities held by one or more Funds, subject to certain requirements and
restrictions.
PRINCIPAL HOLDERS OF SECURITIES
To the knowledge of the Trust as of April 6, 2000, no shareholder owned
beneficially or of record 5% or more of any Fund's outstanding shares of any
class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of:
Ivy Asia Pacific Fund, Northern Trust Custodian FBO W. Hall Wendel
Jr., P.O. Box 92956 Chicago, IL 60675, owned of record 127,877.238 shares
(34.67%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL Jacksonville,
FL 32246, owned of record 57,697.052 shares (15.64%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL 32246, owned of record 991,944.251 shares (13.33%);
Ivy Pacific Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 88,810.181 shares (7.43%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 733,792.800
shares (25.95%);
Ivy Global Natural Resources Fund, Carn & Co. 02087502 Riggs Bank
TTEE FBO Yazaki Employee Savings and Retirement PL, Attn: Star Group, P.O. Box
96211 Washington, DC 20090-6211 owned of record 60,160.879 shares (9.99%);
Ivy International Fund, Charles Schwab & Co. Inc. Reinvest Account,
Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned
of record 8,648,661.843 shares (30.25%) and Merrill Lynch Pierce Fenner & Smith
For the Sole Benefit of Its Customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,025,817.607
(21.07%);
Ivy International Value Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL 32246 owned of record 901,733.310 shares
(32.27%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998 owned of
record 19,811.507 shares (16.64%), Mackenzie Investment Management Inc., Attn:
Bev Yanowitch,Via Mizner Financial Plaza, 700 South Federal Highway, Ste. 300,
Boca Raton, FL 33432 owned of record 10,312.921 shares (8.66%,) Parker Hunter
Inc.FBO Keshava Reddy MD Inc. Defined Benefit Pension Trust U/A DTD 2/1/80, 404
Wellington Ct., Venice, FL 34292-3157 owned of record 6,566.130 shares (5.51%),
and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers,
Attn: Fund Administration 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246,
owned of record 6,048.887 shares (5.08%);
Ivy International Strategic Bond Fund, IBT Cust Money Purch PL FBO
Frederic Neuburger, 25 Hanley Road, Liverpool, NY 13090, owned of record 877.125
shares (53.63%), Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box
2052, Jersey City, NJ 07303-9998, owned of record 758.136 shares (46.35%);
Ivy Money Market Fund, Donald Annino TTEE Pediatrician Inc. Target
Benefit Pension Plan U/A DTD 10/31/87, 61 Oxford St., Winchester, MA 01890,
owned of record 784,722.350 shares (5.36%);
Ivy US Emerging Growth Fund, F & Co. Inc. CUST FBO 401 K Plan,
Attn: Russ Pollack ADM, 125 Broad Street, New York, NY 10004-2400, owned of
record 115,590.121 shares (5.28%);
Ivy Developing Markets Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (13.93%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., P.O. Box 2052 Jersey City, NJ 07303-9998, owned of
record 65,806.720 shares (7.10%), Merrill Lynch Pierce Fenner & Smith Inc.
Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL,
Jacksonville, FL 32246, owned of record 50,772.902 shares (5.48%), and Charles
Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 49,811.577 shares (5.37%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E,
3rd FL, Jacksonville, FL, owned of record 195,131.631 shares (41.83%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 1,408,235.680 shares (48.74%);
Ivy Pacific Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 130,194.917 (17.21%);
Ivy Developing Markets Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 226,089.602 shares (25.66%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E, 3rd FL, Jacksonville, FL, owned of record 590,841.655 shares
(29.21%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 58,255.711 shares (11.14%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E, 3rd FL, Jacksonville, FL, owned of record 92,422.394 shares
(33.65%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL,
Jacksonville, FL 32246, owned of record 144,773.250 shares (16.14%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 39,872.586 shares (9.24%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E,
3rd FL, Jacksonville, FL, owned of record 4,908,729.144 shares (46.00%);
Ivy International Value Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 4,765,693.148 shares (60.44%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E, 3rd FL, Jacksonville, FL, owned of record 33,931.288 shares
(20.64%) and Parker Hunter Incorporated FBO Martha K Reddy Trustee U/A DTD
5/2/94 Martha K Reddy 1994 Living Trust Venice, FL 34292-3157, owned of record
10,022 shares (6.09 %);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E,
3rd FL, Jacksonville, FL, owned of record 104,923.409 shares (14.26%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E, 3rd FL, Jacksonville, FL, owned of record 403,099.962 shares (22.91%).
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E.,
3rd FL, Jacksonville, FL, owned of record 32,150.765 shares (9.45%) and Robert
M. Ahnert & Margaret A. Ahnert JT TWROS, 624 Flamingo Dr., Ft. Lauderdale, FL
33301, owned of record 17,623.011 shares (5.18%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 214,807.102 shares (55.38%);
Ivy Pacific Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL ,Jacksonville, FL, owned of record 31,891.102 shares (38.76%);
Ivy Developing Markets Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL, Jacksonville, FL, owned of record 74,441.265 shares (19.93%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E., 3rd FL, Jacksonville, FL, owned of record 1,269,062.340 shares
(45.54%);
Ivy Global Fund, IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San
Diego, CA 92114-1711, owned of record 3,312.662 shares (21.26%), Merrill Lynch
Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund
Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record
2,953.344 shares (18.96%), Salomon Smith Barney Inc., 333 West 34th St. - 3rd
Floor, New York, NY 10001, owned of record 1,148.182 shares (7.37%), Smith
Barney Inc. 00112701249, 388 Greenwich Street, New York, NY owned of record
1,104.870 shares (7.09%), and Smith Barney Inc. 00107866133, 388 Greenwich
Street, New York, NY owned of record 952.492 shares (6.11%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL, Jacksonville, FL owned of record 10,794.738 shares (35.64%),
Salomon Smith Barney Inc. 00129805698, 333 West 34th St. - 3rd Floor, New York,
NY 10001, owned of record 3,425.540 shares (11.30%), George I Kocerka & Mary L
Kocerka TTEE U/A DTD Feb 11 1993, George I and Mary L Kocerka TR, 3391 Pinnacle
CT., S. Palm Harbor, FL 34684-1771, owned of record 2,927.400 shares (9.66%),
Alma R Buncsak TTEE of the Alma R Buncsak Rev Trust U/A/D 11-27-95, 745 Cherokee
Path, Lake Mills, WI 53551, owned of record 2,034.101 shares (6.71%) and Raymond
James & Assoc. Inc. CSDN David C Johnson M/P, 1113 45th Ave NE, Saint
Petersburg, FL 33703-5247, owned of record 1,748.252 shares (5.77%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL,
Jacksonville, FL, owned of record 41,373.201 shares (10.50%);
Ivy Growth Fund, IBT CUST IRA FBO Joseph L Wright ,32211 Pierce Street,
Garden City, MI 48135, owned of record 4,651.187 shares (14.03%), Merrill Lynch
Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund
Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record
3,905.716 shares (11.78%), UMB Bank CUST IRA FBO Peter L Bognar, 17 Cordes
Drive, Tonawanda, NY 14221, owned of record 3,729.271 shares (11.24%), May Ann
Ash & Robert R Ash JT TEN 1119 Rundle St. Scranton, PA 18504, owned of record
2,642.230 shares (7.97%), and UMB CUST IRA FBO Ronald Wise, 45 Fordham, Buffalo,
NY 14216, owned of record 2,041.275 shares (6.15%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E.,
3rd FL, Jacksonville, FL owned of record 1,653,544.169 shares (61.44%);
Ivy International Value Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL, Jacksonville, FL owned of record 2,298,844.349 shares (66.03%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E., 3rd FL, Jacksonville, FL owned of record 69,403.361 shares (71.10%);
Ivy Money Market Fund, IBT CUST R/O IRA FBO Virginia M Hambleton, 619
Winther Blvd. Nampa, ID 83651, owned of record 109,449.820 shares (12.67%),
Painewebber For The Benefit of Bruce Blank, 36 Ridge Brook Lane Stamford, CT
06903, owned of record 108,553.810 shares (12.57%), IBT CUST R/O IRA FBO Kathryn
Batko, 1823 S 139th St., Omaha, NE 68144, owned of record 82,615.230 shares
(9.56%), Bear Stearns Securities Corp. FBO 486-89241-11, 1 Metrotech Center
North, Brooklyn, NY 11201-3859, owned of record 82,615.230 shares (9.56%), Mary
K Aistrope & Mary Sue Jenkins JT TEN, 1635 N. 106th Street, Omaha, NE 68114,
owned of record 50,174.460 shares (5.80%), and Bear Stearns Securities Corp FBO
486-05954-14 1 Metrotech Center North Brooklyn, NY 11201-3859, owned of record
48,853.000 shares (5.65%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E.,
3rd FL, Jacksonville, FL owned of record 11,952.636 shares (6.54%) and Donaldson
Lufkin Jenrette Securities Corporation Inc. P.O. Box 2052 Jersey City, NJ
07303-9998, owned of record 10,199.831 shares (5.58%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL, Jacksonville, FL owned of record 95,681.085 shares (28.55%);
CLASS I
Of the outstanding Class I shares of:
Ivy European Opportunities Fund, NFSC FEBO # RAS-469041 NFSC/FMTC
IRA FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of
record 615.012 shares (100%);
Ivy International Fund, Charles Schwab & Co. Inc. Reinvest Account,
Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned
of record 389,576.275 shares (13.74%), State Street Bank TTEE FBO Allison
Engines, 200 Newport Ave., 7th Floor, North Quincy, MA 02171, owned of record
327,350.589 shares (11.54%), Lynspen and Company For Reinvestment, P.O. Box
83084, Birmingham, AL 35283, owned of record 252,973.459 shares (8.92%),
Harleysville Mutual Ins. Co/Equity, 355 Maple Ave., Harleysville, PA 19438,
owned of record 191,304.895 shares (6.74%), Northern Trust Co. TTEE of The Great
Lakes Chemical RTMT Trust A/C # 22-37152, P.O. Box 92956, 801 S. Canal St. C1S,
Chicago, IL 60675-2956, owned of record 181,365.292 shares (5.98%), S. Mark
Taper Foundation, 12011 San Vincente Blvd., Ste 400, Los Angeles, CA 90049,
owned of record 169,779.308 shares (5.98%), and Vanguard Fiduciary Trust Company
FBO Investment & Employee Stock Ownership Plan of Avista Corp. # 92094, P.O. Box
2600, VM 613, Attn: Outside Funds, Valley Forge, PA 19482, owned of record
154,798.565 shares (5.45%);
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Asia Pacific Fund, Brown Brothers Harriman & Co. CUST,
International Solutions IV- Long Term Growth, Attn: Terron McGovern, 40 Water
St. Boston, MA 02109, owned of record 19,521.431 shares (73.06%), Brown Brothers
Harriman & Co. CUST International Solutions V- Aggressive Growth, Attn: Terron
McGovern, 40 Water St. Boston, MA 02109, owned of record 5,387.835 shares
(20.17%), Brown Brothers Harriman & Co. CUST International Solutions II -
Balanced Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned
of record 1,602.659 shares (6.00%);
Ivy Bond Fund, Donaldson Lufkin Jenrette Securities Corporation Inc.,
P.O. Box 2052 Jersey City, NJ 07303-9998, owned of record 8,890.147 shares
(26.19%), NFSC FEBO # 279-055662 C. William Ferris/Michael Landry/Keith Carlson
U/A 01/01/98, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of
record 6,564.613 shares (19.34%), Donaldson Lufkin Jenrette Securities
Corporation Inc. P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record
5,383.304 shares (15.85%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 2,366.810
shares (6.97%);
Ivy Pacific Opportunities Fund, Brown Brothers Harriman & Co. CUST
International Solutions IV- Long Term Growth, Attn: Terron McGovern, 40 Water
St. Boston, MA 02109, owned of record 32,622.646 shares (61.95%), Brown Brothers
Harriman & Co. CUST International Solutions III - Moderate Growth, Attn: Terron
McGovern, 40 Water Street, Boston, MA 02109, owned of record 9,740.980 shares
(18.49%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL,
Jacksonville, FL owned of record 5,243.316 shares (9.95%), and Brown Brothers
Harriman & Co. CUST International Solutions V - Aggressive Growth, Attn: Terron
McGovern, 40 Water Street, Boston, MA 02109, owned of record 3,240.952 shares
(6.15%);
Ivy Developing Markets Fund, Brown Brothers Harriman & Co. CUST
International Solutions IV - Long Term Growth, Attn: Terron McGovern, 40 Water
Street, Boston, MA 02109, owned of record 29,259.893 shares (56.59%), NFSC FEBO
# 279-055662 C. William Ferris/Michael Landry/Keith Carlson U/A 01/01/98, 700
South Federal Highway, Boca Raton, FL 33432-6114, owned of record 15,597.547
shares (30.16%), and Brown Brothers Harriman & Co. CUST International Solutions
V - Aggressive Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109,
owned of record 5,809.684 shares (11.23%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record 857,967.359 shares
(77.29%) and Pyramid I Limited Partnership C/O Roland Manarin, 11650 Dodge Rd.,
Omaha, NE 68154, owned of record 55,972.256 shares (5.04%);
Ivy Global Fund, NFSC FEBO # 279-055662 C. William Ferris/Michael
Landry/Keith Carlson U/A 01/01/98 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 12,646.539 shares (100%);
Ivy Global Natural Resources Fund, NFSC FEBO # 279-055662 C. William
Ferris/Michael Landry/Keith Carlson U/A 01/01/98, 700 South Federal Highway,
Boca Raton, FL 33432-6114, owned of record 1,943.284 shares (66.05%), Donaldson
Lufkin Jenrette Securities Corporation Inc. P.O. Box 2052 Jersey City, NJ
07303-9998, owned of record 822.637 shares (27.96%), and Edward M. Tighe, P.O.
Box 2160, Ft. Lauderdale, FL 33303, owned of record 175.788 shares (5.97%);
Ivy Global Science & Technology Fund, Robert Chapin & Michelle
Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove,
Boca Raton, FL 33432, owned of record 3,345.624 shares (19.60%), Merrill Lynch
Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund
Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record
1,675.999 shares (9.81%), Donaldson Lufkin Jenrette Securities Corporation Inc.,
P.O. Box 2052 Jersey City, NJ 07303-9998, owned of record 1,675.999 shares
(9.81%), Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052
Jersey City, NJ 07303-9998, owned of record 1,061.784 shares (6.22%), and
Michele C. Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of
record 1,061.586 shares (6.21%);
Ivy Growth Fund, NFSC FEBO # 279-055662 C. William Ferris/Michael
Landry/Keith Carlson U/A 01/01/98, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 19,148.030 shares (99.41%);
Ivy International Value Fund, Brown Brothers Harriman & Co. CUST
International Solutions IV - Long Term Growth, Attn: Terron McGovern, 40 Water
Street, Boston, MA 02109, owned of record 35,889.863 shares (24.70%), Charles
Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 26,271.557 shares (18.08%) and
Brown Brothers Harriman & Co. CUST International Solutions III - Moderate
Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned of
record 23,078.909 shares (15.88%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record 16,327.134 shares
(37.27%), Brown Brothers Harriman & Co. CUST International Solutions IV - Long
Term Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned of
record 14,667.380 shares (33.48%), Brown Brothers Harriman & Co. CUST
International Solutions III - Moderate Growth, Attn: Terron McGovern, 40 Water
Street, Boston, MA 02109, owned of record 9,262.050 shares (21.14%), and Brown
Brothers Harriman & Co. CUST International Solutions V - Aggressive Growth,
Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned of record
2,403.696 shares (5.48%);
Ivy International Strategic Bond Fund, Mackenzie Investment
Management Inc. Attn: Bev Yanowitch, Via Mizner Financial Plaza, 700 S. Federal
Hwy., Ste. 300, Boca Raton, FL 33432, owned of record 106,161.036 shares
(73.22%), Brown Brothers Harriman & Co. CUST International Solutions III -
Moderate Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned
of record 24,135.915 shares (16.64), Brown Brothers Harriman & Co. CUST
International Solutions I - Conservative Growth, Attn: Terron McGovern, 40 Water
Street, Boston, MA 02109, owned of record 7,998.962 shares (5.51%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc. Attn:
Bev Yanowitch, Via Mizner Financial Plaza, 700 S. Federal Hwy., Ste. 300, Boca
Raton, FL 33432, owned of record 50,392.878 shares (67.45%), NFSC FEBO #
279-055662 C. William Ferris/Michael Landry/Keith Carlson U/A 01/01/98, 700
South Federal Highway, Boca Raton, FL 33432-6114, owned of record 19,514.840
shares (26.12%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual
Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record
4,144.193 shares (5.54%);
Ivy US Emerging Growth Fund, NFSC FEBO # 279-055662 C. William
Ferris/Michael Landry/Keith Carlson U/A 01/01/98 700 South Federal Highway, Boca
Raton, FL 33432-6114, owned of record 27,214.448 shares (63.24%), Charles Schwab
& Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 8,850.972 shares (20.57%), Mackenzie
Investment Management Inc., Attn: Bev Yanowitch, Via Mizner Financial Plaza, 700
S. Federal Hwy., Ste. 300, Boca Raton, FL 33432, owned of record 50,392.878
shares (67.45%), NFSC FEBO # 279-055662 C. William Ferris/Michael Landry/Keith
Carlson U/A 01/01/98 700 South Federal Highway, Boca Raton, FL 33432-6114, owned
of record 19,514.840 shares (26.12%), and Charles Schwab & Co. Inc. Reinvest
Account, Attn: Mutual Fund Dept., 101 Montgomery St. San Francisco, CA 94104,
owned of record 4,144.193 shares (5.54%).
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario and whose shares are listed for trading on the TSE.
MFC provides investment advisory services to Ivy Global Natural Resources Fund
pursuant to an Investment Advisory Agreement, and IMI provides business
management and investment advisory services to each of the other Funds pursuant
to a Business Management and Investment Advisory Agreement (each an
"Agreement"). IMI provides business management services to Ivy Global Natural
Resources Fund pursuant to a Business Management Agreement (the "Management
Agreement"). IMI also currently acts as manager and investment adviser to the
other series of Ivy Fund.
The Agreements obligate IMI and MFC to make investments for the account
of each Fund in accordance with its best judgment and within the investment
objectives and restrictions set forth in the Prospectus, the 1940 Act and the
provisions of the Code relating to regulated investment companies, subject to
policy decisions adopted by the Board. IMI and MFC also determine the securities
to be purchased or sold by each Fund and place orders with brokers or dealers
who deal in such securities.
Under the IMI Agreement and the Management Agreement, IMI also provides
certain business management services. IMI is obligated to (1) coordinate with
each Fund's Custodian and monitor the services it provides to each Fund; (2)
coordinate with and monitor any other third parties furnishing services to each
Fund; (3) provide each Fund with necessary office space, telephones and other
communications facilities as are adequate for the Fund's needs; (4) provide the
services of individuals competent to perform administrative and clerical
functions that are not performed by employees or other agents engaged by each
Fund or by IMI acting in some other capacity pursuant to a separate agreement or
arrangements with the Fund; (5) maintain or supervise the maintenance by third
parties of such books and records of the Trust as may be required by applicable
Federal or state law; (6) authorize and permit IMI's directors, officers and
employees who may be elected or appointed as trustees or officers of the Trust
to serve in such capacities; and (7) take such other action with respect to the
Trust, after approval by the Trust as may be required by applicable law,
including without limitation the rules and regulations of the SEC and of state
securities commissions and other regulatory agencies. IMI is also responsible
for reviewing the activities of MFC to ensure that Ivy Global Natural Resources
Fund is operated in compliance with its investment objectives and policies and
with the 1940 Act.
Henderson Investment Management Limited ("Henderson"), 3 Finsbury
Avenue, London, England EC2M 2PA, serves as subadviser to Ivy European
Opportunities Fund under a subadvisory agreement with IMI. For its services,
Henderson receives a fee from IMI that is equal, on an annual basis, to .22% of
the Fund's average net assets. Since February 1, 1999, Henderson has also served
as subadviser with respect to 50% of the net assets of Ivy International Small
Companies Fund, for which Henderson receives a fee from IMI that is equal, on an
annual basis, to .22% of that portion of the Fund's assets that Henderson
manages. Henderson is an indirect, wholly owned subsidiary of AMP Limited, an
Australian life insurance and financial services company located in New South
Wales, Australia.
Ivy Global Natural Resources Fund pays IMI a monthly fee for providing
business management services at an annual rate of 0.50% of the Fund's average
net assets. For investment advisory services, Ivy Global Natural Resources Fund
pays MFC, through IMI, a monthly fee at an annual rate of 0.50% of its average
net assets.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Global Natural Resources Fund paid IMI fees of $32,056, $20,977 and $35,984,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
IMI reimbursed Fund expenses in the amount of $25,180, $147,952 and $170,530,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
the Fund paid MFC fees of $32,056, $20,977 and $35,984, respectively.
Each other Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of 1.00% of the
Fund's average net assets.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Asia Pacific Fund paid IMI fees of $10,473, $49,509 and $72,724, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, IMI reimbursed
Fund expenses of $10,473, $167,194 and $119,280, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Pacific Opportunities Fund paid IMI fees of $277,601, $187,381 and $191,792,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
IMI reimbursed Fund expenses of $18,377, $105,095 and $125,910, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Developing Markets Fund paid IMI fees of $284,290, $156,166 and $152,772,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
IMI reimbursed Fund expenses of $22,860, $200,839 and $149,367, respectively.
During the period from commencement (May 3, 1999) through December 31,
1999, Ivy European Opportunities Fund paid IMI fees of $27,735. During the same
period, IMI reimbursed Fund expenses in the amount of $107,722.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Global Fund paid IMI fees of $383,981, $275,958 and $202,715, respectively.
During the same periods, IMI reimbursed Fund expenses in the amount of $0,
$98,102 and $120,751, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Global Science & Technology Fund paid IMI fees of $229,616, $280,079 and
$466,093, respectively. During the same periods, IMI reimbursed Fund expenses in
the amount of $0, $0 and $0, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal years ended December 31, 1998 and 1999, Ivy
International Value Fund paid IMI fees of $413,862, $1,356,028 and $1,533,107,
respectively. During the same periods, IMI reimbursed Fund expenses in the
amount of $123,177, $186,536 and $226,984, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
International Small Companies Fund paid IMI fees of $28,799, $34,504 and
$28,729, respectively. During the same periods, IMI reimbursed Fund expenses in
the amount of $28,799, $134,787 and $178,983, respectively.
Under the Agreements, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
With respect to all Funds other than Ivy Global Science and Technology
Fund, IMI currently limits each Fund's total operating expenses (excluding Rule
12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification expenses, and extraordinary expenses) to an annual
rate of 1.95% (1.50% in the case of Ivy International Value Fund) of that Fund's
average net assets, which may lower each Fund's expenses and increase its yield.
The Agreements will continue in effect with respect to each Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected with respect to each Fund only if approved by the affirmative
vote of a majority of the outstanding voting securities of that Fund. See
"Capitalization and Voting Rights."
The Agreements may be terminated with respect to each Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of a Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. Each
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of each Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of each Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Each Fund has authorized IMDI to accept on its behalf purchase and
redemption orders. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on each Fund's behalf. Each Fund will be
deemed to have received a purchase or redemption order when an authorized
intermediary or, if applicable, an intermediary's authorized designee, accepts
the order. Client orders will be priced at each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in each Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, each Fund bears, among other
expenses, the expenses of registering and qualifying its shares for sale under
Federal and state securities laws and preparing and distributing to existing
shareholders periodic reports, proxy materials and prospectuses.
During the fiscal years ended December 31, 1997, 1998 and 1999, IMDI
received from sales of Class A shares of Ivy Asia Pacific Fund $28,616, $45,623
and $21,454, respectively, in sales commissions, of which $3,127, $4,654 and
$2,008, respectively, was retained after dealer allowances. During the fiscal
year ended December 31, 1999, IMDI received $521 in CDSCs on redemptions of
Class B shares of Ivy Asia Pacific Fund. During the fiscal year ended December
31, 1999, IMDI received $1,315 in CDSCs on redemptions of Class C shares of Ivy
Asia Pacific Fund.
During the fiscal years ended December 31, 1997, 1998, and 1999, IMDI
received from sales of Class A shares of Ivy Pacific Opportunities Fund
$119,166, $57,500, and $24,061, respectively, in sales commissions, of which
$16,807, $6,494, and $3,501, respectively, was retained after dealer allowances.
During the fiscal year ended December 31, 1999, IMDI received $4,816 in CDSCs on
redemptions of Class B shares of Ivy Pacific Opportunities Fund. During the
fiscal year ended December 31, 1999, IMDI received $2,810 in CDSCs on redemption
of Class C shares of Ivy Pacific Opportunities Fund.
During the fiscal years ended December 31, 1997, 1998, and 1999, IMDI
received from sales of Class A shares of Ivy Developing Markets Fund $107,081,
$25,728, and $15,886, respectively, in sales commissions, of which $13,412,
$2,583, and $2,505, respectively, was retained after dealer allowances. During
the fiscal year ended December 31, 1999, IMDI received $6,773 in CDSCs on
redemptions of Class B shares of Ivy Developing Markets Fund. During the fiscal
year ended December 31, 1999, IMDI received $5,645 in CDSCs on redemptions of
Class C shares of Ivy Developing Markets Fund.
During the fiscal year ended December 31, 1999, IMDI received from
sales of Class A shares of Ivy European Opportunities Fund $401,890 in sales
commissions, of which $48,186 was retained after dealer allowances. During the
fiscal year ended December 31, 1999, IMDI received $0 in CDSCs on redemptions of
Class B shares of Ivy European Opportunities Fund. During the fiscal year ended
December 31, 1999, IMDI received $0 in CDSCs on redemptions of Class C shares of
Ivy European Opportunities Fund.
During the fiscal years ended December 31, 1997, 1998, and 1999, IMDI
received from sales of Class A shares of Ivy Global Fund $74,515, $17,112, and
$8,985, respectively, in sales commissions, of which $10,387, $2,536, and
$1,782, respectively, was retained after dealer allowances. During the fiscal
year ended December 31, 1999, IMDI received $3,960 in CDSCs on redemptions of
Class B shares of Ivy Global Fund. During the fiscal year ended December 31,
1999, IMDI received $699 in CDSCs on redemptions of Class C shares of Ivy Global
Fund.
During the fiscal years ended December 31, 1997, 1998, and 1999, IMDI
received from sales of Class A shares of Ivy Global Natural Resources Fund
$35,134, $3,682, and $5,378, respectively, in sales commissions, of which
$5,286, $580, and $596, respectively, was retained after dealer allowances.
During the fiscal year ended December 31, 1999, IMDI received $2,705 in CDSCs on
redemptions of Class B shares of Ivy Global Natural Resources Fund. During the
fiscal year ended December 31, 1999, IMDI received $312 in CDSCs on redemptions
of Class C shares of Ivy Global Natural Resources Fund.
During the fiscal years ended December 31, 1997, 1998, and 1999, IMDI
received from sales of Class A shares of Ivy Global Science & Technology Fund
$243,079, $54,052, and $117,902, respectively., in sales commissions, of which
$32,035, $7,170, and $14,767, respectively, was retained after dealer
allowances. During the fiscal year ended December 31, 1999, IMDI received $3,615
in CDSCs on redemptions of Class B shares of Ivy Global Science & Technology
Fund. During the fiscal year ended December 31, 1999, IMDI received $1,772 in
CDSCs on redemptions of Class C shares of Ivy Global Science & Technology Fund.
During the fiscal years ended December 31, 1997, 1998, and 1999, IMDI
received from sales of Class A shares of Ivy International Value Fund $765,930,
$432,944, and $189,094, respectively, in sales commissions, of which $64,358,
$31,170, and $17,300, respectively, was retained after dealer allowances. During
the fiscal year ended December 31, 1999, IMDI received $85,785 in CDSCs on
redemptions of Class B shares of Ivy International Value Fund. During the fiscal
year ended December 31, 1999, IMDI received $51,163 in CDSCs on redemptions of
Class C shares of Ivy International Value Fund.
During the fiscal years ended December 31, 1997, 1998, and 1999, IMDI
received from sales of Class A shares of Ivy International Small Companies Fund
$53,343, $7,460, and $2,271, respectively, in sales commissions, of which
$5,425, $578, and $268, respectively, was retained after dealer allowances.
During the fiscal year ended December 31, 1999, IMDI received $2,951 in CDSCs on
redemptions of Class B shares of Ivy International Small Companies Fund. During
the fiscal year ended December 31, 1999, IMDI received $1,565 in CDSCs on
redemptions of Class C shares of Ivy International Small Companies Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of each
Fund. The Distribution Agreement may be terminated with respect to any Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by a Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
Payments to Dealers: IMDI currently intends to pay to dealers a sales commission
of 4% of the sale price of Class B shares they have sold, and will receive the
entire amount of the CDSC paid by shareholders on the redemption of Class B
shares to finance the 4% commission and related marketing expenses. With respect
to Class C shares, IMDI currently intends to pay to dealers a sales commission
of 1% of the sale price of Class C shares that they have sold, a portion of
which is to compensate the dealers for providing Class C shareholder account
services during the first year of investment. IMDI will receive the entire
amount of the CDSC paid by shareholders on the redemption of Class C shares to
finance the 1% commission and related marketing expenses.
Santander Securities ("Santander"), an NASD member, will receive 5.00%
of the value of Class B shares of Ivy Global Science & Technology Fund purchased
through Santander during the period September 15, 2000 through October 31, 2000.
RULE 18f-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund
represent an equal pro rata interest in that Fund and generally have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications, terms and conditions, except that
each class bears certain class-specific expenses and has separate voting rights
on certain matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of another
class; (ii) subject to certain limitations described in the Prospectus, shares
of a particular class of each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that Fund after a period of eight years,
based on the relative net asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of each
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to each Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit each Fund and its
shareholders. The Trustees of the Trust believe that the Plans should result in
greater sales and/or fewer redemptions of each Fund's shares, although it is
impossible to know for certain the level of sales and redemptions of any Fund's
shares in the absence of a Plan or under an alternative distribution
arrangement.
Under each Plan, each Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. This
fee constitutes reimbursement to IMDI for fees paid by IMDI. The services for
which service fees may be paid include, among other things, advising clients or
customers regarding the purchase, sale or retention of shares of the Fund,
answering routine inquiries concerning the Fund and assisting shareholders in
changing options or enrolling in specific plans. Pursuant to each Plan, service
fee payments made out of or charged against the assets attributable to the
Fund's Class A, Class B or Class C shares must be in reimbursement for services
rendered for or on behalf of the affected class. The expenses not reimbursed in
any one month may be reimbursed in a subsequent month. The Class A Plan does not
provide for the payment of interest or carrying charges as distribution
expenses.
Under each Fund's Class B and Class C Plans, each Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. This
fee constitutes compensation to IMDI and is not dependent on IMDI's expenses
incurred. IMDI may reallow to dealers all or a portion of the service and
distribution fees as IMDI may determine from time to time. The distribution fee
compensates IMDI for expenses incurred in connection with activities primarily
intended to result in the sale of the Fund's Class B or Class C shares,
including the printing of prospectuses and reports for persons other than
existing shareholders and the preparation, printing and distribution of sales
literature and advertising materials. Pursuant to each Class B and Class C Plan,
IMDI may include interest, carrying or other finance charges in its calculation
of distribution expenses, if not prohibited from doing so pursuant to an order
of or a regulation adopted by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by each Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by each Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers banks,
investment advisers, financial institutions and other entities for services
rendered in the distribution of each Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker 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.
The Class B Plan and underwriting agreement were amended effective
March 16, 1999 to permit IMDI to sell its right to receive distribution fees
under the Class B Plan and CDSCs to third parties. IMDI enters into such
transactions to finance the payment of commissions to brokers at the time of
sale and other distribution-related expenses. In connection with such
amendments, the Trust has agreed that the distribution fee will not be
terminated or modified (including a modification by change in the rules relating
to the conversion of Class B shares into shares of another class) for any reason
(including a termination of the underwriting agreement) except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, or the Conduct Rules of the NASD,
in each case enacted, issued, or promulgated after March 16, 1999;
(ii) on a basis which does not alter the amount of the distribution
payments to IMDI computed with reference to Class B shares the date
of original issuance of which occurred on or before December 31,
1998;
(iii) in connection with a Complete Termination (as defined in the Class
B Plan); or
(iv) on a basis determined by the Board of Trustees acting in good faith
so long as (a) neither the Trust nor any successor trust or fund or
any trust or fund acquiring a substantial portion of the assets of
the Trust (collectively, the "Affected Funds") nor the sponsors of
the Affected Funds pay, directly or indirectly, as a fee, a trailer
fee, or by way of reimbursement, any fee, however denominated, to
any person for personal services, account maintenance services or
other shareholder services rendered to the holder of Class B shares
of the Affected Funds from and after the effective date of such
modification or termination, and (b) the termination or
modification of the distribution fee applies with equal effect to
all outstanding Class B shares from time to time of all Affected
Funds regardless of the date of issuance thereof.
In the amendments to the underwriting agreement, the Trust has also
agreed that it will not take any action to waive or change any CDSC in respect
of any Class B share the date of original issuance of which occurred on or
before December 31, 1998, except as provided in the Trust's prospectus or
statement of additional information, without the consent of IMDI and its
transferees.
During the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund
paid IMDI $4,458 pursuant to its Class A plan. During the fiscal year ended
December 31, 1999 Ivy Asia Pacific Fund paid IMDI $29,339 pursuant to its Class
B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI
$25,172 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy Asia Pacific Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $2,907; compensation to underwriters $0; compensation to
dealers, $796; compensation to sales personnel, $6,577; interest, carrying or
other financing charges $0; seminars and meetings, $199; travel and
entertainment, $663; general and administrative, $3,960; telephone, $202; and
occupancy and equipment rental, $518.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy Asia Pacific Fund:
advertising, $26; printing and mailing of prospectuses to persons other than
current shareholders, $4,978; compensation to underwriters $0; compensation to
dealers, $3,829; compensation to sales personnel, $11,115; interest, carrying or
other financing charges $0; seminars and meetings, $957; travel and
entertainment, $1,118; general and administrative, $6,588; telephone, $340; and
occupancy and equipment rental, $863.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy Asia Pacific Fund:
advertising, $11; printing and mailing of prospectuses to persons other than
current shareholders, $4,293; compensation to underwriters $0; compensation to
dealers, $4,867; compensation to sales personnel, $9,603; interest, carrying or
other financing charges $0; seminars and meetings, $1,217; travel and
entertainment, $965; general and administrative, $5,708; telephone, $295; and
occupancy and equipment rental, $747.
During the fiscal year ended December 31, 1999, Ivy Pacific
Opportunities Fund paid IMDI $28,776 pursuant to its Class A plan. During the
fiscal year ended December 31, 1999 Ivy Pacific Opportunities Fund paid IMDI
$68,312 pursuant to its Class B plan. During the fiscal year ended December 31,
1999, the Fund paid IMDI $7,429 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy Pacific Opportunities Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $16,851; compensation to underwriters $0; compensation to
dealers, $5,564; compensation to sales personnel, $42,802; interest, carrying or
other financing charges $0; seminars and meetings, $1,391; travel and
entertainment, $4,294; general and administrative, $25,669; telephone, $1,317;
and occupancy and equipment rental, $3,364.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy Pacific Opportunities Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $10,102; compensation to underwriters $0; compensation to
dealers, $7,686; compensation to sales personnel, $25,491; interest, carrying or
other financing charges $0; seminars and meetings, $1,922; travel and
entertainment, $2,562; general and administrative, $15,292; telephone, $785; and
occupancy and equipment rental, $2,004.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy Pacific Opportunities Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $1,077; compensation to underwriters $0; compensation to
dealers, $1,237; compensation to sales personnel, $2,761; interest, carrying or
other financing charges $0; seminars and meetings, $310; travel and
entertainment, $277; general and administrative, $1,668; telephone, $85; and
occupancy and equipment rental, $218.
During the fiscal year ended December 31, 1999, Ivy Developing Markets
Fund paid IMDI $13,129 pursuant to its Class A plan. During the fiscal year
ended December 31, 1999 Ivy Developing Markets Fund paid IMDI $67,796 pursuant
to its Class B plan. During the fiscal year ended December 31, 1999, the Fund
paid IMDI $30,867 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy Developing Markets Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $8,092; compensation to underwriters $0; compensation to
dealers, $1,022; compensation to sales personnel, $3,987; interest, carrying or
other financing charges $0; seminars and meetings, $256; travel and
entertainment, $650; general and administrative, $2,247; telephone, $136; and
occupancy and equipment rental, $212.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy Developing Markets Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $14,771; compensation to underwriters $0; compensation to
dealers, $7,791; compensation to sales personnel, $25,450; interest, carrying or
other financing charges $0; seminars and meetings, $1,947; travel and
entertainment, $2,556; general and administrative, $15,325; telephone, $784; and
occupancy and equipment rental, $2,008.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy Developing Markets Fund:
advertising, $11; printing and mailing of prospectuses to persons other than
current shareholders, $6,675; compensation to underwriters $0; compensation to
dealers, $4,765; compensation to sales personnel, $11,660; interest, carrying or
other financing charges $0; seminars and meetings, $1,191; travel and
entertainment, $1,170; general and administrative, $6,932; telephone, $357; and
occupancy and equipment rental, $909.
During the fiscal year ended December 31, 1999, Ivy European
Opportunities Fund paid IMDI $2,343 pursuant to its Class A plan. During the
fiscal year ended December 31, 1999 Ivy European Opportunities Fund paid IMDI
$4,903 pursuant to its Class B plan. During the fiscal year ended December 31,
1999, the Fund paid IMDI $4,338 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy European Opportunities
Fund: advertising, $87; printing and mailing of prospectuses to persons other
than current shareholders, $17,859; compensation to underwriters $0;
compensation to dealers, $2,323; compensation to sales personnel, $8,327;
interest, carrying or other financing charges $0; seminars and meetings, $581;
travel and entertainment, $853; general and administrative, $4,775; telephone,
$253; and occupancy and equipment rental, $621.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy European Opportunities
Fund: advertising, $40; printing and mailing of prospectuses to persons other
than current shareholders, $8,232; compensation to underwriters $0; compensation
to dealers, $1,045; compensation to sales personnel, $3,838; interest, carrying
or other financing charges $0; seminars and meetings, $262; travel and
entertainment, $393; general and administrative, $2,201; telephone, $117; and
occupancy and equipment rental, $286.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy European Opportunities
Fund: advertising, $42; printing and mailing of prospectuses to persons other
than current shareholders, $8,646; compensation to underwriters $0; compensation
to dealers, $6,914; compensation to sales personnel, $4,032; interest, carrying
or other financing charges $0; seminars and meetings, $1,728; travel and
entertainment, $413; general and administrative, $2,312; telephone, $123; and
occupancy and equipment rental, $300.
During the fiscal year ended December 31, 1999, Ivy Global Fund paid
IMDI $31,419 pursuant to its Class A plan. During the fiscal year ended December
31, 1999 Ivy Global Fund paid IMDI $70,526 pursuant to its Class B plan. During
the fiscal year ended December 31, 1999, the Fund paid IMDI $3,272 pursuant to
its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy Global Fund: advertising,
$0; printing and mailing of prospectuses to persons other than current
shareholders, $6,262; compensation to underwriters $0; compensation to dealers,
$4,993; compensation to sales personnel, $45,588; interest, carrying or other
financing charges $0; seminars and meetings, $1,248; travel and entertainment,
$4,554; general and administrative, $27,992; telephone, $1,412; and occupancy
and equipment rental, $3,674.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy Global Fund: advertising,
$0; printing and mailing of prospectuses to persons other than current
shareholders, $3,618; compensation to underwriters $0; compensation to dealers,
$6,087; compensation to sales personnel, $26,136; interest, carrying or other
financing charges $0; seminars and meetings, $1,521; travel and entertainment,
$2,618; general and administrative, $15,924; telephone, $808; and occupancy and
equipment rental, $2,088.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy Global Fund: advertising,
$0; printing and mailing of prospectuses to persons other than current
shareholders, $163; compensation to underwriters $0; compensation to dealers,
$420; compensation to sales personnel, $1,187; interest, carrying or other
financing charges $0; seminars and meetings, $105; travel and entertainment,
$118; general and administrative, $738; telephone, $37; and occupancy and
equipment rental, $97.
During the fiscal year ended December 31, 1999, Ivy Global Natural
Resources Fund paid IMDI $11,668 pursuant to its Class A plan. During the fiscal
year ended December 31, 1999, Ivy Global Natural Resources Fund paid IMDI
$22,713 pursuant to its Class B plan. During the fiscal year ended December 31,
1999, the Fund paid IMDI $2,446 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy Global Natural Resources
Fund: advertising, $96; printing and mailing of prospectuses to persons other
than current shareholders, $4,463; compensation to underwriters $0; compensation
to dealers, $2,493; compensation to sales personnel, $18,073; interest, carrying
or other financing charges $0; seminars and meetings, $624; travel and
entertainment, $1,841; general and administrative, $10,553; telephone, $552; and
occupancy and equipment rental, $1,376.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy Global Natural Resources
Fund: advertising, $1; printing and mailing of prospectuses to persons other
than current shareholders, $2,123; compensation to underwriters $0; compensation
to dealers, $3,817; compensation to sales personnel, $8,600; interest, carrying
or other financing charges $0; seminars and meetings, $955; travel and
entertainment, $869; general and administrative, $5,117; telephone, $265; and
occupancy and equipment rental, $669.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy Global Natural Resources
Fund: advertising, $6; printing and mailing of prospectuses to persons other
than current shareholders, $243; compensation to underwriters $0; compensation
to dealers, $486; compensation to sales personnel, $993; interest, carrying or
other financing charges $0; seminars and meetings, $121; travel and
entertainment, $102; general and administrative, $576; telephone, $30; and
occupancy and equipment rental, $75.
During the fiscal year ended December 31, 1999, Ivy Global Science &
Technology Fund paid IMDI $48,884 pursuant to its Class A plan. During the
fiscal year ended December 31, 1999 Ivy Global Science & Technology Fund paid
IMDI $168,658 pursuant to its Class B plan. During the fiscal year ended
December 31, 1999, the Fund paid IMDI $101,399 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy Global Science & Technology
Fund: advertising, $106; printing and mailing of prospectuses to persons other
than current shareholders, $15,429; compensation to underwriters $0;
compensation to dealers, $11,953; compensation to sales personnel, $76,114;
interest, carrying or other financing charges $0; seminars and meetings, $2,988;
travel and entertainment, $7,636; general and administrative, $45,221;
telephone, $2,336; and occupancy and equipment rental, $5,932.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy Global Science & Technology
Fund: advertising, $241; printing and mailing of prospectuses to persons other
than current shareholders, $13,846; compensation to underwriters $0;
compensation to dealers, $36,551; compensation to sales personnel, $66,530;
interest, carrying or other financing charges $0; seminars and meetings, $9,137;
travel and entertainment, $6,686; general and administrative, $39,226;
telephone, $2,037; and occupancy and equipment rental, $5,142.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy Global Science & Technology
Fund: advertising, $23; printing and mailing of prospectuses to persons other
than current shareholders, $7,805; compensation to underwriters $0; compensation
to dealers, $24,635; compensation to sales personnel, $38,841; interest,
carrying or other financing charges $0; seminars and meetings, $6,158; travel
and entertainment, $3,895; general and administrative, $23,136; telephone,
$1,193; and occupancy and equipment rental, $3,034.
During the fiscal year ended December 31, 1999, Ivy International Value
Fund paid IMDI $70,498 pursuant to its Class A plan. During the fiscal year
ended December 31, 1999, Ivy International Value Fund paid IMDI $843,423
pursuant to its Class B plan. During the fiscal year ended December 31, 1999,
the Fund paid IMDI $396,869 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy International Value Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $12,682; compensation to underwriters $0; compensation to
dealers, $13,212; compensation to sales personnel, $104,669; interest, carrying
or other financing documents $0; seminars and meetings, $3,303; travel and
entertainment, $10,515; general and administrative, $62,855; telephone, $3,224;
and occupancy and equipment rental, $8,234.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy International Value Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $37,720; compensation to underwriters $0; compensation to
dealers, $119,177; compensation to sales personnel, $312,137; interest, carrying
or other financing charges $0; seminars and meetings, $29,794; travel and
entertainment, $31,221; general and administrative, $188,124; telephone, $9,615;
and occupancy and equipment rental, $24,690.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy International Value Fund:
advertising, $0; printing and mailing of prospectuses to persons other than
current shareholders, $17,620; compensation to underwriters $0; compensation to
dealers, $66,236; compensation to sales personnel, $146,205; interest, carrying
or other financing charges $0; seminars and meetings, $16,559; travel and
entertainment, $14,619; general and administrative, $88,436; telephone, $4,509;
and occupancy and equipment rental, $11,607.
During the fiscal year ended December 31, 1999, Ivy International Small
Companies Fund paid IMDI $2,255 pursuant to its Class A plan. During the fiscal
year ended December 31, 1999, Ivy International Small Companies Fund paid IMDI
$10,075 pursuant to its Class B plan. During the fiscal year ended December 31,
1998, the Fund paid IMDI $8,988 pursuant to its Class C plan.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class A shares of Ivy International Small
Companies Fund: advertising, $0; printing and mailing of prospectuses to persons
other than current shareholders, $3,397; compensation to underwriters $0;
compensation to dealers, $417; compensation to sales personnel, $3,443;
interest, carrying or other financing charges $0; seminars and meetings, $105;
travel and entertainment, $344; general and administrative, $2,083; telephone,
$106; and occupancy and equipment rental, $273.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class B shares of Ivy International Small
Companies Fund: advertising, $0; printing and mailing of prospectuses to persons
other than current shareholders, $3,763; compensation to underwriters $0;
compensation to dealers, $1,169; compensation to sales personnel, $3,865;
interest, carrying or other financing charges $0; seminars and meetings, $292;
travel and entertainment, $388; general and administrative, $2,333; telephone,
$120; and occupancy and equipment rental, $305.
During the fiscal year ended December 31, 1999, IMDI expended the
following amounts in marketing Class C shares of Ivy International Small
Companies Fund: advertising, $0; printing and mailing of prospectuses to persons
other than current shareholders, $3,868; compensation to underwriters $0;
compensation to dealers, $1,218; compensation to sales personnel, $3,447;
interest, carrying or other financing charges $0; seminars and meetings, $305;
travel and entertainment, $346; general and administrative, $2,117; telephone,
$107; and occupancy and equipment rental, $277.
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of each Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of each Fund's foreign securities. With
respect to each Fund, the Custodian may receive, as partial payment for its
services to each Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund
paid MIMI $20,305 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Pacific
Opportunities Fund paid MIMI $36,086 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Developing Markets
Fund paid MIMI $35,656 under the agreement.
During the fiscal year ended December 31, 1999, Ivy European
Opportunities Fund paid MIMI $11,488 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Global Fund paid
MIMI $36,499 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Global Natural
Resources Fund paid MIMI $23,905 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Global Science &
Technology Fund paid MIMI $57,838 under the agreement.
During the fiscal year ended December 31, 1999, Ivy International Value
Fund paid MIMI $102,828 under the agreement.
During the fiscal year ended December 31, 1999, Ivy International Small
Companies Fund paid MIMI $20,669 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC,
a wholly owned subsidiary of MIMI located at Via Mizner Financial Plaza, Ste.
300, 700 S. Federal Hwy., Boca Raton, Florida, 33432, is the transfer agent for
each Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate
of $20.00 for each open Class A, Class B, Class C and Advisor Class account.
Each Fund with Class I shares pays a monthly fee at an annual rate of $10.25 per
open Class I account. In addition, each Fund pays a monthly fee at an annual
rate of $4.70 per account that is closed plus certain out-of-pocket expenses.
Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Asia
Pacific Fund totaled $22,560. Such fees and expenses for the fiscal year ended
December 31, 1999 for Ivy Pacific Opportunities Fund totaled $98,352. Such fees
and expenses for the fiscal year ended December 31, 1999 for Ivy Developing
Markets Fund totaled $68,986. Such fees and expenses for the fiscal year ended
December 31, 1999 for Ivy European Opportunities Fund totaled $1,888. Such fees
and expenses for the fiscal year ended December 31, 1999 for Ivy Global Fund
totaled $64,932. Such fees and expenses for the fiscal year ended December 31,
1999 for Ivy Global Natural Resources Fund totaled $38,990. Such fees and
expenses for the fiscal year ended December 31, 1999 for Ivy Global Science &
Technology Fund totaled $93,208. Such fees and expenses for the fiscal year
ended December 31, 1999 for Ivy International Value Fund totaled $412,362. Such
fees and expenses for the fiscal year ended December 31, 1999 for Ivy
International Small Companies Fund totaled $10,849. Certain broker-dealers that
maintain shareholder accounts with each Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. Each Fund with
Class I shares pays MIMI a monthly fee at the annual rate of 0.01% of its
average daily net assets for Class I. Such fees for the fiscal year ended
December 31, 1999 for Ivy Asia Pacific Fund totaled $7,272. Such fees for the
fiscal year ended December 31, 1999 for Ivy Pacific Opportunities Fund totaled
$19,179. Such fees for the fiscal year ended December 31, 1999 for Ivy
Developing Markets Fund totaled $15,277. Such fees for the fiscal year ended
December 31, 1999 for Ivy European Opportunities Fund totaled $2,774. Such fees
for the fiscal year ended December 31, 1999 for Ivy Global Fund totaled $20,271.
Such fees for the fiscal year ended December 31, 1999 for Ivy Global Natural
Resources Fund totaled $7,197. Such fees for the fiscal year ended December 31,
1999 for Ivy Global Science & Technology Fund totaled $46,609. Such fees for the
fiscal year ended December 31, 1999 for Ivy International Value Fund totaled
$153,311. Such fees for the fiscal year ended December 31, 1999 for Ivy
International Small Companies Fund totaled $2,857.
Outside of providing administrative services to the Trust, as
described above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of each Fund.
AUDITORS
PricewaterhouseCoopers LLP, located at 200 E. Las Olas Blvd., Ste.
1700, Ft. Lauderdale, Florida, 33301, has been selected as independent certified
public accountants for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI,
Henderson (for Ivy European Opportunities Fund and a portion of Ivy
International Small Companies Fund's portfolio), or MFC (for Ivy Global Natural
Resources Fund) (the "Advisers"), places orders for the purchase and sale of
each Fund's portfolio securities. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Purchases and sales of debt securities are usually principal
transactions and therefore, brokerage commissions are usually not required to be
paid by the Funds for such purchases and sales (although the price paid
generally includes undisclosed compensation to the dealer). The prices paid to
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter, and purchases of after-market securities from dealers
normally reflect the spread between the bid and asked prices. In connection with
OTC transactions, the Advisers attempt to deal directly with the principal
market makers, except in those circumstances where the Advisers believe that a
better price and execution are available elsewhere.
The Advisers select broker-dealers to execute transactions and evaluate
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 the Advisers in
servicing all of their accounts. In addition, not all of these services may be
used by the Advisers in connection with the services they provide to the Fund or
the Trust. The Advisers may consider sales of shares of Ivy funds as a factor in
the selection of broker-dealers and may select broker-dealers who provide them
with research services. The Advisers may choose broker-dealers that provide the
Advisers with research services and may cause a client to pay such
broker-dealers commissions which exceed those other broker-dealers may have
charged, if the Advisers view the commissions as reasonable in relation to the
value of the brokerage and/or research services. The Advisers will not, however,
seek to execute brokerage transactions other than at the best price and
execution, taking into account all relevant factors such as price, promptness of
execution and other advantages to clients, including a determination that the
commission paid is reasonable in relation to the value of the brokerage and/or
research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Asia
Pacific Fund paid brokerage commissions of $18,500 and $75,104, respectively.
For the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund paid a total
of $18,953 in brokerage commissions with respect to portfolio transactions
aggregating $3,153,247. Of such amount, $2,996 in brokerage commissions with
respect to portfolio transactions aggregating $459,177 was placed with
broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Pacific
Opportunities Fund paid brokerage commissions of $70,846 and $112,289,
respectively. For the fiscal year ended December 31, 1999, Ivy Pacific
Opportunities Fund paid a total of $55,717 in brokerage commissions with respect
to portfolio transactions aggregating $11,400,341 . Of such amount, $17,491 in
brokerage commissions with respect to portfolio transactions aggregating
$3,320,987 was placed with broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy
Developing Markets Fund paid brokerage commissions of $170,306 and $83,565,
respectively. For the fiscal year ended December 31, 1999, Ivy Developing
Markets Fund paid a total of $70,916 in brokerage commissions with respect to
portfolio transactions aggregating $13,688,029. Of such amount, $14,441 in
brokerage commissions with respect to portfolio transactions aggregating
$2,549,170 was placed with broker-dealers who provided research services.
During the period from commencement of operations (May 3, 1999) through
December 31, 1999, Ivy European Opportunities Fund paid brokerage commissions of
$36,908 with respect to portfolio transactions aggregating $25,070,411.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Fund paid brokerage commissions of $123,985 and $76,661, respectively. For the
fiscal year ended December 31, 1999, Ivy Global Fund paid a total of $83,384 in
brokerage commissions with respect to portfolio transactions aggregating
$28,029,168. Of such amount, $24,828 in brokerage commissions with respect to
portfolio transactions aggregating $13,101,081 was placed with broker-dealers
who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Natural Resources Fund paid brokerage commissions of $128,646 and $49,752,
respectively. For the fiscal year ended December 31, 1999, Ivy Global Natural
Resources Fund paid a total of $78,249 in brokerage commissions with respect to
portfolio transactions aggregating $21,724,929. Of such amount, $120 in
brokerage commissions with respect to portfolio transactions aggregating $15,161
was placed with broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Science & Technology Fund paid brokerage commissions of $99,546 and $110,302,
respectively. For the fiscal year ended December 31, 1999, Ivy Global Science &
Technology Fund paid a total of $106,161 in brokerage commissions with respect
to portfolio transactions aggregating $68,575,514. Of such amount, $5,974 in
brokerage commissions with respect to portfolio transactions aggregating
$6,485,831 was placed with broker-dealers who provided research services.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, Ivy
International Value Fund paid brokerage commissions of $332,022 and $225,584,
respectively. For the fiscal year ended December 31, 1999, Ivy International
Value Fund paid a total of $224,332 in brokerage commissions with respect to
portfolio transactions aggregating $72,344,904. Of such amount, $67,438 in
brokerage commissions with respect to portfolio transactions aggregating
$22,354,787 was placed with broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy
International Small Companies Fund paid brokerage commissions of $14,913 and
$5,087, respectively. For the fiscal year ended December 31, 1999, Ivy
International Small Companies Fund paid a total of $15,777 in brokerage
commissions with respect to portfolio transactions aggregating $5,899,377. Of
such amount, $1,360 in brokerage commissions with respect to portfolio
transactions aggregating $203,688 was placed with broker-dealers who provided
research services.
Brokerage commissions vary from year to year in accordance with the
extent to which a particular Fund is more or less actively traded.
Each Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. Each Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that the Advisers deem to be a desirable investment for
each Fund. While no minimum has been established, it is expected that each Fund
will not accept securities having an aggregate value of less than $1 million.
The Trust may reject in whole or in part any or all offers to pay for any Fund
shares with securities and may discontinue accepting securities as payment for
any Fund shares at any time without notice. The Trust will value accepted
securities in the manner and at the same time provided for valuing portfolio
securities of each Fund, and each Fund shares will be sold for net asset value
determined at the same time the accepted securities are valued. The Trust will
only accept securities delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by the
Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Declaration of Trust of the Trust permits the Trustees to create
separate series or portfolios and to divide any series or portfolio into one or
more classes. The Trustees have authorized eighteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy Money Market Fund, and Class A, Class B,
Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy
Pacific Opportunities Fund, Ivy Cundill Value Fund, Ivy Developing Markets Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International
Fund, Ivy International Value Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth
Fund and Ivy Next Wave Internet Fund, as well as Class I shares for Ivy Bond
Fund, Ivy Cundill Value Fund, Ivy European Opportunities Fund, Ivy Global
Science & Technology Fund, Ivy International Value Fund, Ivy International Fund,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy US Blue Chip Fund and Ivy Next Wave Internet Fund. Under the Declaration of
Trust, the Trustees may terminate any Fund without shareholder approval. This
might occur, for example, if a Fund does not reach or fails to maintain an
economically viable size.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent certified
public accountants, will be voted upon collectively by the shareholders of all
funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of
the shares of that Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of that Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by a Fund, the matter shall have been effectively
acted upon with respect to that Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding shares of the Trust may remove a person serving as
trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. Shareholders will be assisted in communicating with other shareholders in
connection with the removal of a Trustee as if Section 26(c) of the Act were
applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the 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 provides for
indemnification out of Fund property for all loss and expense of any shareholder
of any Fund held personally liable for the obligations of that Fund. The risk of
a shareholder of the Trust incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and, thus, should be considered remote. No series of the
Trust is liable for the obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Funds, whose shares are also distributed by IMDI. These funds
are: Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Growth Fund, Ivy International
Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy US Blue
Chip Fund, Ivy US Emerging Growth Fund and Ivy Next Wave Internet Fund (the
other nine 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 a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
See "Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of each Fund have an
exchange privilege with other Ivy funds. Before effecting an exchange,
shareholders of a Fund should obtain and read the currently effective prospectus
for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
Each Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of The Legend Group and United Planners Financial
Services of America, Inc. This privilege will apply on to Class A Shares of a
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares of a mutual fund (other than one of the
Funds) on which a sales charge was paid (the "NAV transfer privilege").
Purchases eligible for the NAV transfer privilege must be made within 60 days of
redemption from the other fund, and the Class A shares purchased are subject to
a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV
transfer privilege also applies to Fund shares purchased directly by clients of
such dealers as long as their accounts are linked to the dealer's master
account. The normal service fee, as described in the "Initial Sales Charge
Alternative - Class A Shares" section of the Prospectus, will be paid to those
dealers in connection with these purchases. IMDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial Services
of America, Inc. in connection with sales of shares of a Fund by its registered
representatives under the NAV transfer privilege. Additional information on
sales charge reductions or waivers may be obtained from IMDI at the address
listed on the cover of this Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGE SHARES
CLASS A: Class A shareholders may exchange their Class A shares that
are subject to a contingent deferred sales charge ("CDSC"), as described in the
Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy
fund ("new Class A shares") on the basis of the relative net asset value per
Class A share, without the payment of any CDSC that would otherwise be due upon
the redemption of the outstanding Class A shares. Class A shareholders of any
Fund exercising the exchange privilege will continue to be subject to that
Fund's CDSC period following an exchange if such period is longer than the CDSC
period, if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of any Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of any Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy Pacific Opportunities Fund, Ivy Cundill Value Fund, Ivy
Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth
Fund, Ivy International Value Fund, Ivy International Fund, Ivy International
Small Companies Fund, Ivy International Strategic Bond Fund, Ivy US Blue Chip
Fund, Ivy US Emerging Growth Fund, and Ivy Next Wave Internet Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE
OF DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following
paragraph, Class I shareholders may exchange their outstanding Class I shares
for Class I shares of another Ivy Fund on the basis of the relative net asset
value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares). No exchange out of any Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($250,000 in the case of Class I
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
any Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of a Fund. A Letter of Intent may be
submitted at the time of an initial purchase of Class A shares of a Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy Pacific Opportunities Fund, Ivy Cundill Value Fund, Ivy
Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth
Fund, Ivy International Value Fund, Ivy International Fund, Ivy International
Small Companies Fund, Ivy International Strategic Bond Fund, Ivy US Blue Chip
Fund, Ivy US Emerging Growth Fund, and Ivy Next Wave Internet Fund (and shares
that have been exchanged into Ivy Money Market Fund from any of the other funds
in the Ivy Funds) held of record by him or her as of the date of his or her
Letter of Intent. During the term of the Letter of Intent, the Transfer Agent
will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, an
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 Agreement. There is no set-up fee for qualified plans and the
annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of any Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
same Fund at net asset value (without a sales charge) within 60 days from the
date of redemption. This privilege may be exercised only once. The reinvestment
will be made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of each Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation 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 such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond;
or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically, accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
have at least $5,000 in his or her account. A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of a Fund are purchased in conjunction with
IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of each Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch
and, on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or more in
assets invested in broker/dealer funds not advised or managed by
Merrill Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between Merrill Lynch and
the fund's principal underwriter or distributor and in funds
advised or managed by MLAM (collectively, the "Applicable
Investments");
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch, and on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement,
the Plan has $3 million or more in assets, excluding money market
funds, invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service Agreement.
Alternatively, Class B shares of each Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of any Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of each Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by a Fund is not reasonably practicable or it is
not reasonably practicable for a Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of any Fund.
Under unusual circumstances, when the Board deems it in the best
interest of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of that Fund taken at
current values. If any such redemption in kind is to be made, each Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
particular Fund to redeem with cash at a shareholder's election in any case
where the redemption involves less than $250,000 (or 1% of that Fund's net asset
value at the beginning of each 90-day period during which such redemptions are
in effect, if that amount is less than $250,000). Should payment be made in
securities, the redeeming shareholder may incur brokerage costs in converting
such securities to cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1000 in any Fund for
a period of more than 12 months. All accounts below that minimum will be
redeemed simultaneously when MIMI deems it advisable. The $1,000 balance will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by a Fund for up to seven
days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
Each Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, a Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of each Fund will
automatically convert to Class A shares of the same Fund, based on the relative
net asset values per share of the two classes, no later than the month following
the eighth anniversary of the initial issuance of such Class B shares of the
Fund occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining each Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted
sale price on the exchange on which the security is principally traded. If no
sale is reported at that time, the average between the last bid and asked price
(the "Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
a Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when that Fund's net asset value is calculated (see
following paragraph), such securities may be valued at fair value as determined
by IMI 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 a Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem that Fund's shares. The sale of each Fund's shares will be suspended
during any period when the determination of its net asset value is suspended
pursuant to rules or orders of the SEC and may be suspended by the Board
whenever in its judgment it is in a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to each Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in any Fund. The Funds are not managed for tax-efficiency.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, each Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. Each Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, each Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, each Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by a Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by each Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If a Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which each Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by each Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by each Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, each Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of a Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time a Fund accrues receivables or liabilities denominated in
a foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, the Fund itself may be subject to a tax on a portion
of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which a Fund held the PFIC shares. A Fund itself will be subject to tax
on the portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Certain distributions from a
PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
Each Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Each Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, each Fund generally would be required to include in its
gross income its share of the earnings of a PFIC on a current basis, regardless
of whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by each Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by each Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. Each Fund may make one
or more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by each Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, a Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. Each Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by each Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by each Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by a Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by each Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of that Fund on the distribution date. A
distribution of an amount in excess of a Fund's current and accumulated earnings
and profits will be treated by a shareholder as a return of capital which is
applied against and reduces the shareholder's basis in his or her shares. To the
extent that the amount of any such distribution exceeds the shareholder's basis
in his or her shares, the excess will be treated by the shareholder as gain from
a sale or exchange of the shares. Shareholders will be notified annually as to
the U.S. Federal tax status of distributions and shareholders receiving
distributions in the form of newly issued shares will receive a report as to the
net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of a Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the same Fund or another regulated investment company and the
otherwise applicable sales charge is reduced under a "reinvestment right"
received upon the initial purchase of Fund shares. The term "reinvestment right"
means any right to acquire shares of one or more regulated investment companies
without the payment of a sales load or with the payment of a reduced sales
charge. Sales charges affected by this rule are treated as if they were incurred
with respect to the shares acquired under the reinvestment right. This provision
may be applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by each Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, that Fund will
be eligible and may elect to "pass-through" to its shareholders the amount of
foreign income and similar taxes paid by the Fund. Pursuant to this election, a
shareholder will be required to include in gross income (in addition to taxable
dividends actually received) his or her pro rata share of the foreign income and
similar taxes paid by the Fund, and will be entitled either to deduct his or her
pro rata share of foreign income and similar taxes in computing his or her
taxable income or to use it as a foreign tax credit against his or her U.S.
Federal income taxes, subject to limitations. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions. Foreign taxes
generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of each Fund's taxable year whether the foreign taxes
paid by that Fund will "pass-through" for that year and, if so, such
notification will designate (1) the shareholder's portion of the foreign taxes
paid to each such country and (2) the portion of the dividend which represents
income derived from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if a Fund
makes the election described in the preceding paragraph, the source of that
Fund's income flows through to its shareholders. With respect to each Fund,
gains from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from each Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of a Fund are
held by the Fund or the shareholder, as the case may be, for less than 16 days
(46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if a Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
Each Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of that Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish a Fund with and to certify
the shareholder's correct taxpayer identification number or social security
number, (2) the IRS notifies the shareholder or the Fund that the shareholder
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to each Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare each Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in each Fund. Unmanaged indices may assume the reinvestment
of dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of that Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase
shares of a specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
For purposes of the above computation for each Fund, it is assumed that
all dividends and capital gains distributions made by that Fund are reinvested
at net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for each Fund do not take into account any required payments for federal or
state income taxes. Standardized Return quotations for Class B shares for
periods of over eight years will reflect conversion of the Class B shares to
Class A shares at the end of the eighth year. Standardized Return quotations are
determined to the nearest 1/100 of 1%.
Each Fund may, from time to time, include in advertisements,
promotional literature or reports to shareholders or prospective investors total
return data that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Class I (where
applicable) shares of each Fund for the periods indicated. In determining the
average annual total return for a specific class of shares of each Fund,
recurring fees, if any, that are charged to all shareholder accounts are taken
into consideration. For any account fees that vary with the size of the account
of each Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
IVY ASIA PACIFIC FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended December 31, 36.76% 38.64% 42.92%
1999
Inception [#] to year (8.38)% (8.21)% (8.45)%
ended December 31, 1999:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended December 31, 45.10% 43.64% 43.92%
1999
Inception [#] to year (6.54)% (7.26)% (8.45)%
ended December 31, 1999:
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B and Class C
shares of the Fund) was January 1, 1997.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been (11.11)% and 34.38%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been (10.29)% and 36.54%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been (10.75)% and 40.61%,
respectively.
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31, 199
and the one year ended December 31, 1999 would have been (9.32)% and 42.59%,
respectively.
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been (9.37)% and
41.54%, respectively.
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been (10.75)% and
41.61%, respectively.
IVY PACIFIC OPPORTUNITIES FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended December 31, 38.28% 40.33% 44.41%
1999
Five years ended .97% 1.02% N/A
December 31, 1999
Inception [#] to year (1.48)% (1.29)% (.71)%
ended December 31,
1999[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended December 31, 46.72% 45.33% 45.41%
1999
Five years ended 2.18% 1.40% N/A
December 31, 1999
Inception [#] to year (.53)% (1.29)% (.71)%
ended December 31,
1999[7]:
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A and Class B shares of
the Fund) was October 22, 1993. The inception date for Class C shares was April
30, 1996.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one year and five years ended December 31, 1999 would have been (1.95)%,
37.38%, and .50%, respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the one year and five years ended December 31, 1999 would have been (1.74)%,
39.38%, and .56%, respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been (1.21)% and 43.27%
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1999.)
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 and the one year and five years ended December 31, 1999 would have been
(1.01)%, 45.77%, and 1.70%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one year and five years ended December 31, 1999 would have been
(1.74)%, 44.38%, and .94%, respectively
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been (1.21)% and
44.27%, respectively. (Since the inception date for Class C shares was April 30,
1996, there were no Class C shares outstanding for the five year period ended
December 31, 1999.)
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
IVY DEVELOPING MARKETS FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended December 31, 38.27% 40.82% 44.84%
1999:
Five years ended 1.07% 1.16% N/A
December 31, 1999
Inception [#] to year (1.76)% (1.53)% (3.13)%
ended December 31,
1999[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended December 31, 46.70% 45.82% 45.84%
1999:
Five years ended 2.28% 1.54% N/A
December 31, 1999
Inception [#] to year (.63)% (1.34)% (2.95)%
ended December 31,
1999[7]:
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares of the Fund was April
30, 1996.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one year and five years ended December 31, 1999 would have been (3.41)%,
36.74%, and (.29)%, respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the one year and five years ended December 31, 1999 would have been (1.72)%,
39.39%, and (.16)%, respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1998 would have been (2.33)% and 43.42%,
respectively.
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 and the one year and five years ended December 31, 1999 would have been
(2.29)%, 45.09%, and .90%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one year and five years ended December 31, 1999 would have been
(1.72)%, 44.39%, and .22%, respectively.
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been (2.33)% and
44.42%, respectively.
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
IVY EUROPEAN OPPORTUNITIES FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Inception [#] to year 197.43% 204.41% 50.80% N/A
ended December 31,
1999[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Inception [#] to year 215.58% 209.41% 51.80% N/A
ended December 31,
1999[8]:
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund was May 3, 1999.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 would
have been 196.35%.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 would
have been 203.51%.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 would
have been 50.43%.
[4 ] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures would be
identical. However, there were no outstanding Class I shares during the periods
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 would have been 214.44%.
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 would have been 208.51%.
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 would have been 51.43%.
[8] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
<PAGE>
IVY GLOBAL FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended December 31, 19.23% 20.31% 24.24%
1999
Five years ended 9.01% 9.15% N/A
December 31, 1999
Inception [#] to year 8.88% 7.70% 6.28%
ended December 31,
1999[8]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended December 31, 26.51% 25.31% 25.24%
1999
Five years ended 10.31% 9.43% N/A
December 31, 1999
Inception [#] to year 9.63% 7.82% 6.28%
ended December 31,
1999[7]:
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A shares) was April 18,
1991. The inception dates for the Class B and Class C shares of the Fund were
April 1, 1994 and April 30, 1996, respectively. Until December 31, 1994,
Mackenzie Investment Management Inc. served as investment adviser to the Fund.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one and five year periods ended December 31, 1999 would have been 8.18%,
18.39%, and 8.71%, respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the five year period ended December 31, 1999 would have been 7.46%, 19.54%, and
8.88%, respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year period ended December 31, 1999 would have been 5.89% and 23.21%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1999.)
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 and the one and five year periods ended December 31, 1999 would have been
8.92%, 25.62%, and 10.00%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one and five year periods ended December 31, 1999 would have been
7.58%, 25.54%, and 9.16%, respectively.
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year period ended December 31, 1999 would have been 5.89% and
24.21%, respectively. (Since the inception date for Class C shares was April 30,
1996, there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1999.)
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
IVY GLOBAL NATURAL RESOURCES FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended December 31, 32.87% 34.87% 37.97%
1999:
Inception [#] to year .13% .44% .82%
ended December 31,
1999[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended December 31, 40.98% 39.87% 38.97%
1999:
Inception [#] to year 2.13% 1.42% .82%
ended December 31,
1999[7]:
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund was January 1, 1997.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been (2.24)% and 29.80%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been (1.89)% and 31.62%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been (2.34)% and 34.69%,
respectively.
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been (.28)% and 37.74%,
respectively.
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been (.93)% and 36.62%,
respectively.
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been (2.34)% and
35.69%, respectively.
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended December 31, 109.76% 115.82% 119.98% N/A
1999
Inception [#] to year 59.35% 60.79% 61.17% N/A
ended December 31,
1999: [8]
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended December 31, 122.56% 120.82% 120.98% N/A
1999
Inception [#] to year 62.03% 60.98% 61.17% N/A
ended December 31,
1999: [8]
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I shares
are not subject to an initial sales charge or a CDSC; therefore, the
Non-Standardized Return Figures would be identical to the Standardized Return
Figures.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B, Class C and
Class I shares of the Fund) was July 22, 1996.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 59.27% and 109.76%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 60.75% and 115.82%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 61.22% and 119.98%,
respectively.
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures would be
identical. However, there were no outstanding Class I shares during the periods
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 61.95% and
122.56%, respectively.
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 60.79% and
120.82%, respectively.
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 61.22% and
120.98%, respectively.
[8] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
IVY INTERNATIONAL VALUE FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended December 31, 20.44% 21.81% 25.91% N/A
1999
Inception [#] to year 5.51% 6.04% 7.08% N/A
ended December 31,
1999[8]:
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended December 31, 27.79% 26.81% 26.91% N/A
1999
Inception [#] to year 7.92% 7.07% 7.08% N/A
ended December 31,
1999[8]:
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I shares
are not subject to an initial sales change or to a CDSC; therefore, the
Non-Standardized Return Figures would be identical to the Standardized Return
Figures.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B, Class C and
Class I shares of the Fund) was May 13, 1997.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 5.42% and 20.33%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 5.90% and 21.58%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 6.94% and 25.66%,
respectively.
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures would be
identical. However, there were no outstanding Class I shares during the periods
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 7.81% and 27.67%,
respectively.
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 6.93% and 26.58%,
respectively.
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 6.94% and 26.66%
respectively.
[8] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
IVY INTERNATIONAL SMALL COMPANIES FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended December 31, 31.43% 33.24% 37.36% N/A
1999
Inception [#] to year 6.58% 6.98% 7.92% N/A
ended December 31, 1999:
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended December 31, 39.45% 38.24% 38.36% N/A
1999
Inception [#] to year 8.70% 7.84% 7.92% N/A
ended December 31, 1999:
[*] The Standardization Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[#] The inception date for Ivy International Small Companies Fund (and
Class A, Class B, Class C and Class I shares of the Fund) was January 1, 1997.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 2.19% and 22.96%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 2.85% and 24.70%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through December 31, 1999 and
the one year ended December 31, 1999 would have been 3.28% and 28.61%,
respectively.
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures would be
identical. However, there were no outstanding Class I shares during the periods
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 4.24% and 30.52%,
respectively.
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 3.69% and 29.70%,
respectively.
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through December 31,
1999 and the one year ended December 31, 1999 would have been 3.28% and 29.61%,
respectively.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of a particular Fund for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment in a specific class of shares of a
Fund over such periods, according to the following formula (cumulative total
return is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase shares
of a specific class
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
IVY ASIA PACIFIC FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
SINCE INCEPTION[*]
ONE YEAR
Class A 36.76% (23.04)%
Class B 38.64% (22.60)%
Class C 42.92% (22.03)%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
SINCE INCEPTION[*]
ONE YEAR
Class A 45.10% (18.34)%
Class B 43.64% (20.21)%
Class C 43.92% (8.45)%
[*] The inception date for the Fund (Class A, Class B and Class C shares) was
January 1, 1997.
IVY CHINA REGION FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 38.28% 4.97% (8.81)%
Class B 40.33% 5.21% (7.69)%
Class C 44.41% N/A (2.59)%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 46.72% 11.37% (3.25)%
Class B 45.33% 7.21% (7.69)%
Class C 45.41% N/A (2.59)%
[*] The inception date for the Fund (Class A and Class B shares) was
October 23, 1993. The inception date for Class C shares of the Fund was
April 30, 1996.
IVY DEVELOPING MARKETS FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 38.27% 5.48% (8.76)%
Class B 40.82% 5.94% (7.67)%
Class C 44.84% N/A (6.18)%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 46.70% 11.91% (3.20)%
Class B 45.82% 7.94% (6.74)%
Class C 45.84% N/A (6.74)%
[*] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares was April 30,
1996.
IVY EUROPEAN OPPORTUNITIES FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
SINCE
INCEPTION[*]
Class A 197.43%
Class B 204.41%
Class C 50.80%
Class I N/A
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
SINCE
INCEPTION[*]
Class A 215.58%
Class B 209.41%
Class C 51.80%
Class I N/A
[*] The inception date for the Fund was May 3, 1999.
IVY GLOBAL FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION
Class A 19.23% 53.95% 109.85%
Class B 20.31% N/A 53.21%
Class C 24.24% N/A 25.05%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 26.51% 63.34% 122.65%
Class B 25.31% N/A 54.21%
Class C 25.24% N/A 25.05%
[*] The inception date for the Class A shares of the Fund was April 18,
1991; the inception date for Class B shares of the Fund was April 1,
1994; and the inception date for Class C shares of the Fund was April
30, 1996. Until December 31, 1994, Mackenzie Investment Management Inc.
served as investment adviser to the Fund.
IVY GLOBAL NATURAL RESOURCES FUND
The following table summarizes the calculation of Cumulative Total
Return for Ivy Global Natural Resources Fund for the periods indicated through
December 31, 1999, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A 32.87% .40%
Class B 34.87% 1.32%
Class C 37.97% 2.47%
The following table summarizes the calculation of Cumulative Total
Return for Ivy Global Natural Resources Fund for the periods indicated through
December 31, 1999, assuming the maximum 5.75% sales charge has not been
assessed.
ONE YEAR SINCE INCEPTION[*]
Class A 40.98% 6.53%
Class B 39.87% 4.32%
Class C 38.97% 2.47%
[*] The inception date for the Fund was January 1, 1997.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A 109.76% 396.70%
Class B 115.82% 413.33%
Class C 119.98% 417.41%
Class I N/A N/A
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A 122.56% 427.00%
Class B 120.82% 415.33%
Class C 120.98% 417.41%
Class I N/A N/A
[*] The inception date for the Fund (Class A, Class B, Class C and I shares) was
July 22, 1996.
IVY INTERNATIONAL VALUE FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A 20.44% 15.21%
Class B 21.81% 16.74%
Class C 25.91% 19.77%
Class I N/A N/A
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A 27.79% 22.24%
Class B 26.81% 19.74%
Class C 26.91% 19.77%
Class I N/A N/A
[*] The inception date for the Fund (Class A, Class B, Class C and Class I
shares) was May 13, 1997.
IVY INTERNATIONAL SMALL COMPANIES FUND
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A 31.43% 21.00%
Class B 33.24% 22.46%
Class C 37.36% 25.75%
Class I N/A N/A
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1999, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A 39.45% 28.38%
Class B 33.24% 25.46%
Class C 37.36% 25.75%
Class I N/A N/A
[*] The inception date for the Fund (Class A, Class B, Class C and Class I
shares) was January 1, 1997.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for each Fund will vary from time to time
depending on market conditions, the composition of that Fund's portfolio and
operating expenses of that Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding a Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of each Fund's shares and the risks associated with each Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
Each Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
Each Fund's Portfolio of Investments as of December 31, 1999, Statement
of Assets and Liabilities as of December 31, 1999, Statement of Operations for
the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1999, Financial Highlights, Notes to
Financial Statements, and Report of Independent Certified Public Accountants,
which are included in each Fund's December 31, 1999 Annual Report to
shareholders, are incorporated by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997
Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY ASIA PACIFIC FUND
IVY DEVELOPING MARKETS FUND
IVY EUROPEAN OPPORTUNITIES FUND
IVY GLOBAL FUND
IVY GLOBAL NATURAL RESOURCES FUND
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
IVY INTERNATIONAL VALUE FUND
IVY INTERNATIONAL SMALL COMPANIES FUND
IVY PACIFIC OPPORTUNITIES FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
ADVISOR CLASS SHARES
May 1, 2000
(as supplemented on September 29, 2000)
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of eighteen portfolios, each of which (except for Ivy
International Strategic Bond Fund) is diversified. This Statement of Additional
Information ("SAI") relates to the Advisor Class shares of the nine portfolios
listed above (each a "Fund"). The other nine portfolios of the Trust are
described in separate prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Funds dated May 1, 2000, as may be supplemented from time to
time (the "Prospectus"), which may be obtained upon request and without charge
from the Trust at the Distributor's address and telephone number printed below.
Advisor Class shares are only offered to certain investors (see Prospectus). The
Funds also offer Class A, B and C shares (as well as Class I shares, in the case
of Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Value Fund, and Ivy International Small Companies Fund), which are
described in a separate prospectus and SAI that may also be obtained without
charge from the Distributor.
Each Fund's Annual Report to shareholders, dated December 31, 1999
(each an "Annual Report"), is incorporated by reference into this SAI. Each
Fund's Annual Report may be obtained without charge from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
INVESTMENT ADVISER
(for Ivy Global Natural Resources Fund)
Mackenzie Financial Corporation ("MFC")
150 Bloor Street West
Suite 400
Toronto, Ontario
CANADA M5S3B5
Telephone: (416) 922-5322
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION...........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS............................1
IVY ASIA PACIFIC FUND................................................2
IVY PACIFIC OPPORTUNITIES FUND.......................................5
IVY DEVELOPING MARKETS FUND..........................................8
IVY EUROPEAN OPPORTUNITIES FUND.....................................11
IVY GLOBAL FUND.....................................................15
IVY GLOBAL NATURAL RESOURCES FUND...................................18
IVY GLOBAL SCIENCE & TECHNOLOGY FUND................................21
IVY INTERNATIONAL VALUE FUND........................................24
IVY INTERNATIONAL SMALL COMPANIES FUND..............................27
RISK CONSIDERATIONS..........................................................30
EQUITY SECURITIES...................................................30
CONVERTIBLE SECURITIES..............................................30
SMALL COMPANIES.....................................................31
INITIAL PUBLIC OFFERINGS............................................31
NATURAL RESOURCES AND PHYSICAL COMMODITIES..........................31
DEBT SECURITIES.....................................................32
ILLIQUID SECURITIES.................................................36
FOREIGN SECURITIES..................................................36
DEPOSITORY RECEIPTS.................................................37
EMERGING MARKETS....................................................38
SECURITIES ISSUED IN PACIFIC REGION COUNTRIES.......................39
FOREIGN SOVEREIGN DEBT OBLIGATIONS..................................40
BRADY BONDS.........................................................40
FOREIGN CURRENCIES..................................................41
FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................41
OTHER INVESTMENT COMPANIES..........................................42
REPURCHASE AGREEMENTS...............................................43
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................43
COMMERCIAL PAPER....................................................43
BORROWING...........................................................43
WARRANTS............................................................44
REAL ESTATE INVESTMENT TRUSTS (REITS)...............................44
OPTIONS TRANSACTIONS................................................44
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................47
SECURITIES INDEX FUTURES CONTRACTS..................................51
COMBINED TRANSACTIONS...............................................52
PORTFOLIO TURNOVER...........................................................53
TRUSTEES AND OFFICERS........................................................53
PRINCIPAL HOLDERS OF SECURITIES..............................................59
CLASS A.............................................................60
CLASS B.............................................................61
CLASS C.............................................................62
CLASS I.............................................................64
ADVISOR CLASS.......................................................65
INVESTMENT ADVISORY AND OTHER SERVICES.......................................67
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................67
DISTRIBUTION SERVICES...............................................70
CUSTODIAN...........................................................71
FUND ACCOUNTING SERVICES............................................72
TRANSFER AGENT AND DIVIDEND PAYING AGENT............................72
ADMINISTRATOR.......................................................73
AUDITORS............................................................73
BROKERAGE ALLOCATION.........................................................73
CAPITALIZATION AND VOTING RIGHTS.............................................76
SPECIAL RIGHTS AND PRIVILEGES................................................78
AUTOMATIC INVESTMENT METHOD.........................................78
EXCHANGE OF SHARES..................................................78
RETIREMENT PLANS....................................................79
SYSTEMATIC WITHDRAWAL PLAN..........................................83
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................83
REDEMPTIONS..................................................................84
NET ASSET VALUE..............................................................85
TAXATION.....................................................................86
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............87
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............88
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................89
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................89
DISTRIBUTIONS.......................................................90
DISPOSITION OF SHARES...............................................91
FOREIGN WITHHOLDING TAXES...........................................91
BACKUP WITHHOLDING..................................................92
PERFORMANCE INFORMATION......................................................93
FINANCIAL STATEMENTS.........................................................96
APPENDIX A...................................................................97
<PAGE>
GENERAL INFORMATION
Each Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. Ivy Asia Pacific Fund commenced operations
on January 1, 1997 (Class A, Class B and Class C shares). Ivy Pacific
Opportunities Fund commenced operations (Class A and Class B shares) on October
22, 1993; the inception dates for the Fund's Class C and Advisor Class shares
were April 30, 1996 and February 10, 1998, respectively. Ivy Developing Markets
Fund commenced operations (Class A and Class B shares) on November 1, 1994; the
inception dates for the Fund's Class C and Advisor Class shares were April 30,
1996 and April 30, 1998, respectively. Ivy European Opportunities Fund commenced
operations on May 3, 1999 (all Classes). Ivy Global Fund commenced operations
(Class A shares) on April 18, 1991; the inception dates for the Fund's Class B,
Class C and Advisor Class shares were April 1, 1994, April 30, 1996 and April
30, 1998, respectively. Ivy Global Natural Resources Fund and Ivy International
Small Companies Fund commenced operations on January 1, 1997 (Class A, Class B
and Class C shares); the inception dates for the Funds' Advisor Class shares
were April 18, 1999 and July 1, 1999, respectively. Ivy Global Science &
Technology Fund commenced operations on July 22, 1996 (Class A, Class B and
Class C shares); the inception date for the Fund's Advisor Class shares was
April 15, 1998. Ivy International Value Fund commenced operations on May 13,
1997 (Class A, Class B and Class C shares); the inception date for the Fund's
Advisor Class shares was February 23, 1998.
Descriptions in this SAI of a particular investment practice or
technique in which any Fund may engage or a financial instrument which any Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. For example, IMI may, in its discretion, at any time employ a given
practice, technique or instrument 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 a Fund would not use them. Investors should also be aware
that certain practices, techniques, or instruments could, regardless of their
relative importance in a Fund's overall investment strategy, from time to time
have a material impact on that Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS
Each Fund has its own investment objectives and policies, which are described in
the Prospectus under the captions "Summary" and "Additional Information About
Strategies and Risks." Descriptions of each Fund's policies, strategies and
investment restrictions, as well as additional information regarding the
characteristics and risks associated with each Fund's investment techniques, are
set forth below.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY ASIA PACIFIC FUND
The Fund's principal investment objective is long-term growth.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in
securities issued in Asia-Pacific countries, which for purposes of this SAI are
defined to include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam.
Securities of Asia-Pacific issuers include: (a) securities of companies
organized under the laws of an Asia-Pacific country or for which the principal
securities trading market is in the Asia-Pacific region; (b) securities that are
issued or guaranteed by the government of an Asia-Pacific country, its agencies
or instrumentalities, political subdivisions or the country's central bank; (c)
securities of a company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in the Asia-Pacific region; and (d)
any of the preceding types of securities in the form of depository shares.
The Fund may participate in markets throughout the Asia-Pacific region,
and it is expected that the Fund will be invested at all times in at least three
Asia-Pacific countries. Although it is permitted to, the Fund does not currently
anticipate investing in Japan. As a fundamental policy, the Fund does not
concentrate its investments in any particular industry.
The Fund may invest up to 35% of its assets in investment-grade debt
securities of government or corporate issuers in emerging market countries,
equity securities and investment grade debt securities of issuers in developed
countries (including the United States), warrants, and cash or cash equivalents,
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary defensive purposes, the Fund may invest without limit in such
instruments. The Fund may also invest up to 5% of its net assets in zero coupon
bonds, and in debt securities rated Ba or below by Moody's Investors Service,
Inc. ("Moody's") or BB or below by Standard & Poor's Ratings Services ("S&P"),
or if unrated, are considered by IMI to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in debt
securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, Ivy Asia Pacific Fund may borrow
from banks in accordance with the provisions of the Investment Company Act of
1940, as amended, (the "1940 Act"), but may not purchase securities at any time
during which the value of the Fund's outstanding loans exceeds 10% of the value
of the Fund's assets. The Fund may engage in foreign currency exchange
transactions and enter into forward foreign currency contracts. The Fund may
also invest in other investment companies that invest in securities issued in
Asia-Pacific countries in accordance with the provisions of the 1940 Act, and up
to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets are subject to being
purchased upon the exercise of the calls. The Fund may write or buy straddles or
spreads. For hedging purposes only, the Fund may engage in transactions in stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY ASIA PACIFIC FUND
Ivy Asia Pacific Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(ii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iii) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(iv) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(v) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vi) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(vii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY ASIA PACIFIC FUND
Ivy Asia Pacific Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy.
Under these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid
securities may include securities subject to legal or contractual
restrictions on resale (including private placements), repurchase
agreements maturing in more than seven days, certain options traded
over the counter that the Fund has purchased, securities being used
to cover certain options that the Fund has written, securities for
which market quotations are not readily available, or other
securities which legally or in IMI's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not include
any instrument that, due to the existence of a trading market, to
the Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that the Fund may purchase shares of other investment
companies subject to such restrictions as may be imposed by the
Investment Company Act of 1940 and rules thereunder;
(iii) sell securities short, except for short sales "against the box";
(iv) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund"
total assets;
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account; or
(vi) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, but the Fund may
make margin deposits in connection with transactions in options,
futures and options on futures.
IVY PACIFIC OPPORTUNITIES FUND
The Fund's principal investment objective is long-term capital growth.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in
securities issued in Pacific region countries, which for purposes of this SAI
are defined to include Australia, Bangladesh, Brunai, China, Hong Kong, India,
Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri
Lanka, South Korea, Taiwan, Thailand and Vietnam. Securities of Pacific region
issuers include: (a) securities of companies organized under the laws of a
Pacific region country or whose principal securities trading market is in the
Pacific region; (b) securities that are issued or guaranteed by the government
of a Pacific region country, its agencies or instrumentalities, political
subdivisions or the country's central bank; (c) securities of a company,
wherever organized, where at least 50% of the company's non-current assets,
capitalization, gross revenue or profit in any one of the two most recent fiscal
years represents (directly or indirectly through subsidiaries) assets or
activities located in the Pacific region; and (d) any of the preceding types of
securities in the form of depository shares.
The Fund may participate in markets throughout the Pacific region, and
it is expected that the Fund will be invested at all times in at least three
Pacific region countries. As a fundamental policy, the Fund does not concentrate
its investments in any particular industry.
The Fund may invest up to 35% of its assets in investment-grade debt
securities (i.e., those rated in the four highest rating categories used by
Moody's or S&P of government or corporate issuers in emerging market countries,
equity securities and investment-grade debt securities of issuers in developed
countries (including the United States), warrants, and cash or cash equivalents,
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary defensive purposes, the Fund may invest without limit in such
instruments. The Fund may also invest up to 5% of its net assets in zero coupon
bonds, and in debt securities rated Ba or below by Moody's or BB or below by
S&P, or if unrated, are considered by IMI to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in debt
securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, the Fund may borrow from banks in
accordance with the provisions of the 1940 Act, but may not purchase securities
at any time during which the value of the Fund's outstanding loans exceeds 10%
of the value of the Fund's total assets. The Fund may invest in sponsored or
unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts
("GDRs"), American Depository Shares ("ADSs), and Global Depository Shares
("GDSs), warrants, and securities issued on a "when-issued" or firm commitment
basis, and may engage in foreign currency exchange transactions and enter into
forward foreign currency contracts. The Fund may also invest in other investment
companies in accordance with the provisions of the 1940 Act, and up to 15% of
its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets are subject to being
purchased upon the exercise of the calls. The Fund may write or buy straddles or
spreads. For hedging purposes only, the Fund may engage in transactions in stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY PACIFIC OPPORTUNITIES FUND
Ivy Pacific Opportunities Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority (as defined in the 1940 Act) of
the outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus 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 FOR IVY PACIFIC OPPORTUNITIES FUND
Ivy Pacific Opportunities Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid
securities may include securities subject to legal or contractual
restrictions on resale (including private placements), repurchase
agreements maturing in more than seven days, certain options traded
over the counter that the Fund has purchased, securities being used
to cover certain options that the Fund has written, securities for
which market quotations are not readily available, or other
securities which legally or in IMI's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not include
any instrument that, due to the existence of a trading market, to
the Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary purposes. The Fund may not
purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets;
(vii) purchase securities on margin, 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;
(viii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(ix) sell securities short, except for short sales "against the box"; or
(x) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any
securities (other than capital stock of the Fund), but such persons
or firms may act as brokers for the Fund for customary commissions
to the extent permitted by the Investment Company Act of 1940.
IVY DEVELOPING MARKETS FUND
Ivy Developing Markets Fund's principal objective is long-term growth.
Consideration of current income is secondary to this principal objective. In
pursuing its objective, the Fund invests primarily in the equity securities of
companies that IMI believes will benefit from the economic development and
growth of emerging markets. The Fund considers countries having emerging markets
to be those that (i) are generally considered to be "developing" or "emerging"
by the World Bank and the International Finance Corporation, or (ii) are
classified by the United Nations (or otherwise regarded by their authorities) as
"emerging." Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities (including common and preferred stocks,
convertible debt obligations, warrants, options (subject to the restrictions set
forth below), rights, and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs
that are listed on stock exchanges or traded over-the-counter) of "Emerging
Market growth companies," which are defined as companies (a) for which the
principal securities trading market is an emerging market (as defined above),
(b) that each (alone or on a consolidated basis) derives 50% or more of its
total revenue either from goods, sales or services in emerging markets, or (c)
that are organized under the laws of (and with a principal office in) an
emerging market country.
The Fund normally invests its assets in the securities of issuers
located in at least three emerging market countries, and may invest 25% or more
of its total assets in the securities of issuers located in any one country.
IMI's determination as to whether a company qualifies as an Emerging Market
growth company is based primarily on information contained in financial
statements, reports, analyses and other pertinent information (some of which may
be obtained directly from the company).
For purposes of capital appreciation, Ivy Developing Markets Fund may
invest up to 35% of its total assets in (i) debt securities of government or
corporate issuers in emerging market countries, (ii) equity and debt securities
of issuers in developed countries (including the United States), and (iii) cash
or cash equivalents such as bank obligations (including certificates of deposit
and bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary defensive purposes, the Fund may invest without limit
in such instruments. The Fund may also invest in zero coupon bonds and purchase
securities on a "when-issued" or firm commitment basis.
The Fund will not invest more than 20% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P.
For temporary or emergency purposes, the Fund may borrow from banks in
accordance with the provisions of the 1940 Act, but may not purchase securities
at any time during which the value of the Fund's outstanding loans exceeds 10%
of the value of the Fund's total assets. The Fund may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest in other investment companies in accordance with the
provisions of the 1940 Act, and up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY DEVELOPING MARKETS FUND
Ivy Developing Markets Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus 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 FOR IVY DEVELOPING MARKETS FUND
Unless otherwise indicated, Ivy Developing Markets Fund has adopted the
following additional restrictions, which are not fundamental and which may be
changed without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions
on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any
securities (other than capital stock of the Fund), but such persons
or firms may act a brokers for the Fund for customary commissions
to the extent permitted by the Investment Company Act of 1940.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restrictions (v) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY EUROPEAN OPPORTUNITIES FUND
The Fund's investment objective is long-term capital growth by
investing in the securities markets of Europe. The Fund's subadviser, Henderson
Investment Management Limited ("Henderson"), will invest the Fund's assets in
the securities of European companies, including those companies operating in the
emerging markets of Europe and small capitalization companies operating in the
developed markets of Europe. The Fund may also invest in larger capitalization
European companies and European companies which have been subject to special
circumstances, e.g., privatized companies or companies which provide exceptional
value. Although the majority of the Fund's assets will be invested in equity
securities, the Fund may also invest in cash, short-term or long-term fixed
income securities issued by corporations and governments of Europe if considered
appropriate in relation to the then current economic or market conditions in any
country.
The Fund seeks to achieve its investment objective by investing
primarily in the equity securities of companies domiciled or otherwise doing
business (as described below) in European countries. Under normal circumstances,
the Fund will invest at least 65% of its total assets in the equity securities
of "European companies," which include any issuer (a) that is organized under
the laws of a European country; (b) that derives 50% or more of its total
revenues from goods produced or sold, investments made or services performed in
Europe; or (c) for which the principal trading market is in Europe. The equity
securities in which the Fund may invest include common stock, preferred stock
and common stock equivalents such as warrants and convertible debt securities.
These may include securities issued pursuant to initial public offerings
("IPOs"). The Fund may engage in short-term trading. The Fund may also invest in
sponsored or unsponsored ADRs, EDRs, GDRs, ADSs, EDSs) and GDSs. The Fund does
not expect to concentrate its investments in any particular industry.
The Fund may invest up to 35% of its net assets in debt securities, but
will not invest more than 20% of its net assets in debt securities rated Ba or
below by Moody's or BB or below by S&P or, if unrated, considered by Henderson
to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P. The Fund may purchase Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring their
sovereign debt. The Fund may also purchase securities on a "when-issued" or firm
commitment basis, engage in foreign currency exchange transactions and enter
into forward foreign currency contracts. In addition, the Fund may invest up to
5% of its net assets in zero coupon bonds.
For temporary defensive purposes or when Henderson believes that
circumstances warrant, the Fund may invest without limit in U.S. Government
securities, investment grade debt securities (i.e., those rated Baa or higher by
Moody's or BBB or higher by S&P or, if unrated, considered by Henderson to be of
comparable quality), warrants, and cash or cash equivalents such as domestic or
foreign bank obligations (including certificates of deposit, time deposits and
bankers' acceptances), short-term notes, repurchase agreements, and domestic or
foreign commercial paper.
The Fund may borrow money in accordance with the provisions of the 1940
Act. The Fund may also invest in other investment companies in accordance with
the provisions of the 1940 Act, and may invest up to 15% of its net assets in
illiquid securities.
For hedging purposes, the Fund may purchase put and call options on
securities and stock indices, provided the premium paid for such options does
not exceed 5% of the Fund's net assets. The Fund may also sell covered put
options with respect to up to 10% of the value of its net assets, and may write
covered call options so long as not more than 25% of the Fund's net assets are
subject to being purchased upon the exercise of the calls.
For hedging purposes only, the Fund may engage in transactions in (and
options on) stock index, interest rate and foreign currency futures contracts,
provided that the Fund's equivalent exposure in such contracts does not exceed
15% of its total assets. The Fund may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND
Ivy European Opportunities Fund's investment objective, as set forth in
the Prospectus under "Investment Objective and Policies," and the investment
restrictions set forth below are fundamental policies of the Fund and may not be
changed with respect to the approval of a majority (as defined in the 1940 Act)
of the outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND
Ivy European Opportunities Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions
on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in the subadvisor's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not include
any instrument that, due to the existence of a trading market or to
other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(iii) purchase or sell real estate limited partnership interests;
(iv) sell securities short, except for short sales "against the box";
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
subadviser, for the sale or purchase of portfolio securities shall
not be considered participation in a joint securities trading
account;
(vi) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, but the Fund may
make margin deposits in connection with transactions in options,
futures and options on futures;
(vii) make investments in securities for the purpose of exercising
control over or management of the issuer; or
(viii) invest in interests in oil, gas and/or mineral exploration or
development programs (other than securities of companies that
invest in or sponsor such programs).
IVY GLOBAL FUND
Ivy Global Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and governments
of any nation. Any income realized will be incidental. Under normal conditions,
the Fund will invest at least 65% of its total assets in the common stock of
companies throughout the world, with at least three different countries (one of
which may be the United States) represented in the Fund's overall portfolio
holdings. Although the Fund generally invests in common stock, it may also
invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs,
and investment-grade debt securities (i.e., those rated Baa or higher by Moody's
or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable
quality), including corporate bonds, notes, debentures, convertible bonds and
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P.
The Fund may invest in equity real estate investment trusts, warrants,
and securities issued on a "when-issued" or firm commitment basis, and may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest in other investment companies in
accordance with the provisions of the 1940 Act, and may invest up to 15% of its
net assets in illiquid securities. The Fund may not invest more than 5% of its
total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, Ivy Global Fund may invest without limit in U.S.
Government securities, obligations issued by domestic or foreign banks
(including certificates of deposit, time deposits and bankers' acceptances), and
domestic or foreign commercial paper (which, if issued by a corporation, must be
rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a
company that at the time of investment has an outstanding debt issue rated Aaa
or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices, provided
the premium paid for such options does not exceed 10% of the Fund's net assets.
The Fund may also sell covered put options with respect to up to 50% of the
value of its net assets, and may write covered call options so long as not more
than 20% of the Fund's net assets is subject to being purchased upon the
exercise of the calls. The Fund may also write and buy straddles and spreads.
For hedging purposes only, the Fund may engage in transactions in (and options
on) stock index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority of the outstanding voting shares of the Fund. The Fund
has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas or mineral leases (other
than securities of companies that invest in or sponsor such
programs);
(iii) invest in oil, gas and/or mineral exploration or development
programs;
(iv) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, but the Fund may
make margin deposits in connection with transactions in options,
futures and options on futures;
(v) make investments in securities for the purpose of exercising
control over or management of the issuer;
(vi) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Manager for
the sale or purchase of portfolio securities shall not be
considered participation in a joint securities trading account;
(vii) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a
temporary measure for extraordinary or emergency purposes. All
borrowings will be repaid before any additional investments are
made;
(viii) purchase any security if, as a result, the Fund would then have
more than 5% of its total assets (taken at current value) invested
in securities restricted as to disposition under the Federal
securities laws; or
(ix) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or
acquisition of assets, and except that the Fund may invest in
securities of other investment companies subject to the
restrictions in Section 12(d)(1) of the Investment Company Act of
1940.
The Fund does not interpret fundamental restriction (v) to prohibit
investment in real estate investment trusts.
IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objective is long-term
growth. Any income realized will be incidental. Under normal conditions, the
Fund invests at least 65% of its total assets in the equity securities of
companies throughout the world that own, explore or develop natural resources
and other basic commodities, or supply goods and services to such companies.
Under this investment policy, at least three different countries (one of which
may be the United States) will be represented in the Fund's overall portfolio
holdings. "Natural resources" generally include precious metals (such as gold,
silver and platinum), ferrous and nonferrous metals (such as iron, aluminum and
copper), strategic metals (such as uranium and titanium), coal, oil, natural
gases, timber, undeveloped real property and agricultural commodities. Although
the Fund generally invests in common stock, it may also invest in preferred
stock, securities convertible into common stock and sponsored or unsponsored
ADRs, GDRs, ADSs and GDSs. The Fund may also invest directly in precious metals
and other physical commodities. In selecting the Fund's investments, MFC will
seek to identify securities of companies that, in MFC's opinion, appear to be
undervalued relative to the value of the companies' natural resource holdings.
MFC believes that certain political and economic changes in the global
environment in recent years have had and will continue to have a profound effect
on global supply and demand of natural resources, and that rising demand from
developing markets and new sources of supply should create attractive investment
opportunities. In selecting the Fund's investments, MFC will seek to identify
securities of companies that, in MFC's opinion, appear to be undervalued
relative to the value of the companies' natural resource holdings.
For temporary defensive purposes, Ivy Global Natural Resources Fund may
invest without limit in cash or cash equivalents, such as bank obligations
(including certificates of deposit and bankers' acceptances), commercial paper,
short-term notes and repurchase agreements. For temporary or emergency purposes,
the Fund may borrow from banks in accordance with the provisions of the 1940
Act, but may not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total assets.
The Fund may engage in foreign currency exchange transactions and enter into
forward foreign currency contracts. The Fund may also invest in other investment
companies in accordance with the provisions of the 1940 Act, and may invest up
to 15% of its net assets in illiquid securities.
For hedging purposes only, the Fund may engage in transactions in (and
options on) foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
The Fund may also write or buy puts, calls, straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objectives as set forth
in the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
(a) commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI and (b) commodities
relating to natural resources, as described in the Prospectus and
this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions
on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that the Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the 1940 Act and
rules thereunder;
(iii) purchase or sell interests in oil, gas or mineral leases (other
than securities of companies that invest in or sponsor such
programs);
(iv) invest in interests in oil, gas and/or mineral exploration or
development programs;
(v) sell securities short, except for short sales "against the box;"
(vi) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund"
total assets;
(vii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(viii) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, but the Fund may
make margin deposits in connection with transactions in options,
futures and options on futures; or
(ix) make investments in securities for the purpose of exercising
control over or management of the issuer.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's principal investment objective
is long-term capital growth. Any income realized will be incidental. Under
normal conditions, the Fund will invest at least 65% of its total assets in the
common stock of companies that are expected to benefit from the development,
advancement and use of science and technology. Under this investment policy, at
least three different countries (one of which may be the United States) will be
represented in the Fund's overall portfolio holdings. Industries likely to be
represented in the Fund's portfolio include computers and peripheral products,
software, electronic components and systems, telecommunications, media and
information services, pharmaceuticals, hospital supply and medical devices,
biotechnology, environmental services, chemicals and synthetic materials, and
defense and aerospace. The Fund may also invest in companies that are expected
to benefit indirectly from the commercialization of technological and scientific
advances. In recent years, rapid advances in these industries have stimulated
unprecedented growth. While this is no guarantee of future performance, IMI
believes that these industries offer substantial opportunities for long-term
capital appreciation. Investments made by the Fund may include securities issued
pursuant to IPOs. The Fund may also engage in short-term trading.
Although the Fund generally invests in common stock, it may also invest
in preferred stock, securities convertible into common stock, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), including corporate
bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may
also invest up to 5% of its net assets in debt securities that are rated Ba or
below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
The Fund may invest in warrants, purchase securities on a "when-issued"
or firm commitment basis, engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. The Fund may also invest (i) in
other investment companies in accordance with the provisions of the 1940 Act and
(ii) up to 15% of its net assets in illiquid securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, Ivy Global Science & Technology Fund may invest
without limit in U.S. Government securities, obligations issued by domestic or
foreign banks (including certificates of deposit, time deposits and bankers'
acceptances), and domestic or foreign commercial paper (which, if issued by a
corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has
been issued by a company that at the time of investment has an outstanding debt
issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter
into repurchase agreements, and, for temporary or emergency purposes, may borrow
up to 10% of the value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell covered
put options with respect to up to 50% of the value of its net assets, and may
write covered call options so long as not more than 20% of the Fund's net assets
is subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of the value of its
total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's investment objective, as set
forth in the "Summary" section of the Prospectus, and the investment
restrictions set forth below are fundamental policies of the Fund and may not be
changed without the approval of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting shares. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control or
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions
on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the
counter that the Fund has purchased, securities being used to cover
certain options that a Fund has written, securities for which
market quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the
Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(v) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a
temporary measure for emergency purposes.
(vi) purchase securities on margin;
(vii) sell securities short, except for short sales "against the box"; or
(viii) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any
securities (other than capital stock of the Fund), but such persons
or firms may act as brokers for the Fund for customary commissions
to the extent permitted by the 1940 Act.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (v) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY INTERNATIONAL VALUE FUND
Ivy International Value Fund's principal objective is long-term capital
growth primarily through investment in equity securities. Consideration of
current income is secondary to this principal objective. It is anticipated that
at least 65% of the Fund's total assets will be invested in common stocks (and
securities convertible into common stocks) principally traded in European,
Pacific Basin and Latin American markets. Under this investment policy, at least
three different countries (other than the United States) will be represented in
the Fund's overall portfolio holdings. For temporary defensive purposes, the
Fund may also invest in equity securities principally traded in U.S. markets.
IMI, the Fund's investment manager, invests the Fund's assets in a variety of
economic sectors, industry segments and individual securities in order to reduce
the effects of price volatility in any one area and to enable shareholders to
participate in markets that do not necessarily move in concert with U.S.
markets. IMI seeks to identify rapidly expanding foreign economies, and then
searches out growing industries and corporations, focusing on companies with
established records. Individual securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength. Companies in which investments are made will generally have
at least $1 billion in capitalization and a solid history of operations.
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities (i.e.,
those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated,
considered by IMI to be of comparable quality), preferred stocks, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary or emergency purposes, the Fund may borrow up to 10% of the value of
its total assets from banks. The Fund may also purchase securities on a
"when-issued" or firm commitment basis, and may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest in other investment companies in accordance with the
provisions of the 1940 Act and up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets are subject to being
purchased upon the exercise of the calls. For hedging purposes only, the Fund
may engage in transactions in (and options on) stock index and foreign currency
futures contracts, provided that the Fund's equivalent exposure in such
contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL VALUE FUND
Ivy International Value Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY INTERNATIONAL VALUE FUND
Ivy International Value 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.
Ivy International Value Fund will continue to interpret fundamental
investment restriction (v) above to prohibit investment in real estate limited
partnership interests; this restriction shall not, however, prohibit investment
in readily marketable securities of companies that invest in real estate or
interests therein, including real estate investment trusts.
Under the Investment Company Act of 1940, the Fund is permitted,
subject to its investment restrictions, to borrow money only from banks. The
Trust has no current intention of borrowing amounts in excess of 5% of the
Fund's assets.
IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's principal investment objective
is long-term growth primarily through investment in foreign equity securities.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in common
and preferred stocks (and securities convertible into common stocks) of foreign
issuers having total initial market capitalization of less than $2 billion.
Under this investment policy, at least three different countries (other than the
United States) will be represented in the Fund's overall portfolio holdings. For
temporary defensive purposes, the Fund may also invest in equity securities
principally traded in the United States. The Fund will invest its assets in a
variety of economic sectors, industry segments and individual securities in
order to reduce the effects of price volatility in any area and to enable
shareholders to participate in markets that do not necessarily move in concert
with the U.S. market. The factors that IMI considers in determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships. The Fund may purchase securities issued pursuant to IPOs. The
Fund may engage in short-term trading.
In selecting the Fund's investments, IMI will seek to identify
securities that are attractively priced relative to their intrinsic value. The
intrinsic value of a particular security is analyzed by reference to
characteristics such as relative price-earnings ratio, dividend yield and other
relevant factors (such as applicable financial, tax, social and political
conditions).
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities, zero
coupon bonds, preferred stocks, warrants, or cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. The Fund may also
invest up to 5% of its net assets in debt securities rated Ba or below by
Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of
comparable quality (commonly referred to as "high yield" or "junk" bonds). The
Fund will not invest in debt securities rated less than C by either Moody's or
S&P.
For temporary or emergency purposes, Ivy International Small Companies
Fund may borrow from banks in accordance with the provisions of the 1940 Act,
but may not purchase securities at any time during which the value of the Fund's
outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest in other investment companies in
accordance with the provisions of the 1940 Act, and may invest up to 15% of its
net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index and foreign currency futures contracts, provided
that the Fund's equivalent exposure in such contracts does not exceed 15% of its
total assets. The Fund may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's investment objectives as set
forth in the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed
to be an underwriter in connection with the disposition of
portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest in
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into
repurchase agreements and the purchase of debt instruments or
interests in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection
with the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval, to the extent permitted by applicable law,
regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other
than securities of companies that invest in or sponsor such
programs);
(iii) invest in oil, gas and/or mineral exploration or development
programs;
(iv) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid
securities may include securities subject to legal or contractual
restrictions on resale (including private placements), repurchase
agreements maturing in more than seven days, certain options traded
over the counter that the Fund has purchased, securities being used
to cover certain options that the Fund has written, securities for
which market quotations are not readily available, or other
securities which legally or in IMI's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not include
any instrument that, due to the existence of a trading market, to
the Fund's compliance with certain conditions intended to provide
liquidity, or to other factors, is liquid;
(v) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets;
(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that the Fund may purchase shares of other investment
companies subject to such restrictions as may be imposed by the
1940 Act and rules thereunder;
(vii) sell securities short, except for short sales "against the box;"
(viii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(ix) make investments in securities for the purpose of exercising
control over or management of the issuer; or
(x) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, but the Fund may
make margin deposits in connection with transactions in options,
futures and options on futures.
RISK CONSIDERATIONS
EQUITY SECURITIES
Equity securities can be issued by companies to raise cash; all equity
securities 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 each Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can
experience an immediate drop in value if the demand for the securities does not
continue to support the offering price. Information about the issuers of IPO
securities is also difficult to acquire since they are new to the market and may
not have lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
NATURAL RESOURCES AND PHYSICAL COMMODITIES
Since Ivy Global Natural Resources Fund normally invests a substantial
portion of its assets in securities of companies engaged in natural resources
activities, that Fund may be subject to greater risks and market fluctuations
than funds with more diversified portfolios. The value of the Fund's securities
will fluctuate in response to market conditions generally, and will be
particularly sensitive to the markets for those natural resources in which a
particular issuer is involved. The values of natural resources may also
fluctuate directly with respect to real and perceived inflationary trends and
various political developments. In selecting the Fund's portfolio of
investments, MFC will consider each company's ability to create new products,
secure any necessary regulatory approvals, and generate sufficient customer
demand. A company's failure to perform well in any one of these areas, however,
could cause its stock to decline sharply.
Natural resource industries throughout the world may be subject to
greater political, environmental and other governmental regulation than many
other industries. Changes in governmental policies and the need for regulatory
approvals may have an adverse effect on the products and services of natural
resources companies. For example, the exploration, development and distribution
of coal, oil and gas in the United States are subject to significant Federal and
state regulation, which may affect rates of return on such investments and the
kinds of services that may be offered to companies in those industries. In
addition, many natural resource companies have been subject to significant costs
associated with compliance with environmental and other safety regulations. Such
regulations may also hamper the development of new technologies. The direction,
type or effect of any future regulations affecting natural resource industries
are virtually impossible to predict.
Ivy Global Natural Resources Fund's investments in precious metals
(such as gold) and other physical commodities are considered speculative and
subject to special risk considerations, including substantial price fluctuations
over short periods of time. On the other hand, investments in precious metals
coins or bullion could help to moderate fluctuations in the value of the Fund's
portfolio, since the prices of precious metals have at times tended not to
fluctuate as widely as shares of issuers engaged in the mining of precious
metals. Because precious metals and other commodities do not generate investment
income, however, the return on such investments will be derived solely from the
appreciation and depreciation on such investments. The Fund may also incur
storage and other costs relating to its investments in precious metals and other
commodities, which may, under certain circumstances, exceed custodial and
brokerage costs associated with investments in other types of securities. When
the Fund purchases a precious metal, MFC currently intends that it will only be
in a form that is readily marketable. Under current U.S. tax law, the Fund may
not receive more than 10% of its yearly income from gains resulting from selling
precious metals or any other physical commodity. Accordingly, the Fund may be
required to hold its precious metals or sell them at a loss, or to sell its
portfolio securities at a gain, when for investment reasons it would not
otherwise do so.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's 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). Each Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in the Fund's portfolio,
could adversely affect the price at which a Fund could sell such securities, and
cause large fluctuations in the daily net asset value of a Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of each Fund to retain or dispose of such security. However, should any
individual bond held by any Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include: (1)
direct obligations of the U.S. Treasury (such as Treasury bills, notes, and
bonds) and (2) Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations in
market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize
income currently for Federal income tax purposes in the amount of the unpaid,
accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in a Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of each Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which the
Fund is permitted or able to sell such security, the Fund might obtain a price
less favorable than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted securities, a
Fund may be required to bear all or part of the registration expenses. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, 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 each Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in each Fund's domestic investments.
Although IMI intends to invest each Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
Each Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict each Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of each Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, each Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to each Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
each Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
each Fund's cash and securities, each Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
SECURITIES ISSUED IN PACIFIC REGION COUNTRIES
Certain Pacific region countries in which Ivy Asia Pacific Fund and Ivy
Pacific Opportunities Fund are likely to invest are developing countries, and
may be in the initial stages of their industrialization cycle. The economic
structures of developing countries generally are less diverse and mature than in
the United States, and their political systems may be relatively unstable.
Historically, markets of developing countries have been more volatile than the
markets of developed countries, yet such markets often have provided higher
rates of return to investors.
Investing in securities of issuers in Pacific region countries involves
certain considerations not typically associated with investing in securities
issued in the United States or in other developed countries, including (i)
restrictions on foreign investment and on repatriation of capital invested in
Asian countries, (ii) currency fluctuations, (iii) the cost of converting
foreign currency into United States dollars, (iv) potential price volatility and
lesser liquidity of shares traded on Pacific region securities markets and (v)
political and economic risks, including the risk of nationalization or
expropriation of assets and the risk of war.
Certain Pacific region countries may be more vulnerable to the ebb and
flow of international trade and to trade barriers and other protectionist or
retaliatory measures. Investments in countries that have recently opened their
capital markets and that appear to have relaxed their central planning
requirement, as well as in countries that have privatized some of their
state-owned industries, should be regarded as speculative.
The settlement period of securities transactions in foreign markets in
general may be longer than in domestic markets, and such delays may be of
particular concern in developing countries. For example, the possibility of
political upheaval and the dependence on foreign economic assistance may be
greater in developing countries than in developed countries, either one of which
may increase settlement delays.
Securities exchanges, issuers and broker-dealers in some Pacific region
countries are subject to less regulatory scrutiny than in the United States. In
addition, due to the limited size of the markets for Pacific region securities,
the prices for such securities may be more vulnerable to adverse publicity,
investors' perceptions or traders' positions or strategies, which could cause a
decrease not only in the value but also in the liquidity of a Fund's
investments.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
BRADY BONDS
Ivy European Opportunities Fund may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings have been implemented to date in Argentina,
Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico,
Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, each Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of each Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and each Fund may incur costs in connection with
conversions between various currencies. Although each Fund's custodian values
the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
Each Fund will do so from time to time, however, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because each Fund normally will be invested in both U.S. and
foreign securities markets, changes in each Fund's share price may have a low
correlation with movements in U.S. markets. Each Fund's share price will reflect
the movements of the different stock and bond markets in which it is invested
(both U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of each Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. Currencies in which
each Fund's assets are denominated may be devalued against the U.S. dollar,
resulting in a loss to each Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by that Fund. An imperfect correlation of this type may
prevent a Fund from achieving the intended hedge or expose the Fund to the risk
of currency exchange loss.
Each Fund may purchase currency forwards and combine such purchases
with sufficient cash or short-term securities to create unleveraged substitutes
for investments in foreign markets when deemed advantageous. Each Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
Each Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which that Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, a Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). Each Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, each Fund is permitted to enter into
repurchase agreements only if the repurchase agreements are at least fully
collateralized with U.S. Government securities or other securities that IMI has
approved for use as collateral for repurchase agreements and the collateral must
be marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, a Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. Each Fund may invest in commercial paper that is rated Prime-1 by
Moody's 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 each Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by any Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real
estate mortgages or equities for the benefit of its investors. REITs are
dependent upon management skill, may not be diversified and are subject to the
risks of financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through Ivy Global Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded option wishes to terminate the
obligation, the writer may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the Options Clearing Corporation. However, a writer may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate his
or her position by effecting a "closing sale transaction." This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected at any particular time or at any acceptable price.
If any call or put option is not exercised or sold, it will become worthless on
its expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction, a Fund
would negotiate directly with the counterparty.
Each Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by that Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that a Fund has written lapses unexercised, because the Fund would
retain the premium. Any such gains (or losses) are considered short-term capital
gains (or losses) for Federal income tax purposes. Net short-term capital gains,
when distributed by each Fund, are taxable as ordinary income. See "Taxation."
Each Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by that Fund if the
premium, less commission costs, received by the Fund on the sale of the call or
the put is greater (or less) than the premium, plus commission costs, paid by
the Fund to purchase the call or the put. If a put or a call expires
unexercised, it will become worthless on the expiration date, and the Fund will
realize a loss in the amount of the premium paid, plus commission costs. Any
such gain or loss will be long-term or short-term gain or loss, depending upon
the Fund's holding period for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by each Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When a Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may write (sell)
covered call options on each Fund's securities in an attempt to realize a
greater current return than would be realized on the securities alone. Each Fund
may also write covered call options to hedge a possible stock or bond market
decline (only to the extent of the premium paid to the Fund for the options). In
view of the investment objectives of each Fund, each Fund generally would write
call options only in circumstances where the investment adviser to the Fund does
not anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a Fund is
obligated as the writer of a call option, that Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although a
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, a Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as a Fund remains
obligated as a writer of a call option, it forgoes the opportunity to profit
from increases in the market price of the underlying security above the exercise
price of the option, except insofar as the premium represents such a profit (and
retains the risk of loss should the value of the underlying security decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may purchase a
put option on an underlying security owned by that Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
Each Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that a Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by any Fund for leverage purposes.
Each Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. A Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. Each Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by a Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may be able
to offset to some extent any adverse effects of being unable to liquidate an
option position, a Fund may experience losses in some cases as a result of such
inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in each Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the
level of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by a Fund, that Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, each Fund generally
realizes a capital gain, or if it is more, the Fund generally realizes a capital
loss. Conversely, if an offsetting sale price is more than the original purchase
price, each Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
When purchasing a futures contract, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
each Fund may "cover" its position by purchasing a put option on the same
futures contract with a strike price as high as or higher than the price of the
contract held by the Fund, or, if lower, may cover the difference with cash or
short-term securities.
When selling a futures contract, each Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, each Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, a Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, each Fund will
maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
Each Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. Each Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
Each Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. Each Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in a Fund's portfolio securities being hedged. In addition,
there are significant differences between the securities and futures markets
that could result in an imperfect correlation between the markets, causing a
given hedge not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund (except Ivy Global Natural Resources Fund) may enter into
securities index futures contracts as an efficient means of regulating the
Fund's exposure to the equity markets. Each Fund will not engage in transactions
in futures contracts for speculation, but only as a hedge against changes
resulting from market conditions in the values of securities held in the Fund's
portfolio or which it intends to purchase. An index futures contract is a
contract to buy or sell units of an index at a specified future date at a price
agreed upon when the contract is made. Entering into a contract to buy units of
an index is commonly referred to as purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. The
value of a unit is the current value of the stock index. For example, the S&P
500 Index is composed of 500 selected common stocks, most of which are listed on
the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative
weightings to the 500 common stocks included in the Index, and the Index
fluctuates with changes in the market values of the shares of those common
stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500
units. Thus, if the value of the S&P 500 Index were $150, one contract would be
worth $75,000 (500 units x $150). The index futures contract specifies that no
delivery of the actual securities making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and the actual level
of the stock index at the expiration of the contract. For example, if a Fund
enters into a futures contract to buy 500 units of the S&P 500 Index at a
specified future date at a contract price of $150 and the S&P 500 Index is at
$154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If
a Fund enters into a futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 Index is at
$154 on that future date, the Fund will lose $2,000 (500 units x loss of $4).
RISKS OF SECURITIES INDEX FUTURES. Each Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each Fund
will bear the risk that the prices of the securities being hedged will not move
in the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although each Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when a Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
a Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, a Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, a Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss. The transaction costs must
also be included in these calculations.
Each Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. Each
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a Fund may "cover" its position by purchasing a put option on the
same futures contract with a strike price as high as or higher than the price of
the contract held by the Fund.
When selling an index futures contract, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with an FCM as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, a
Fund may "cover" its position by owning the instruments underlying the contract
(or, in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS
Each Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions and multiple currency
transactions (including forward currency contracts) and some combination of
futures, options, and currency transactions ("component" transactions), instead
of a single transaction, as part of a single or combined strategy when, in the
opinion of IMI, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on IMI's judgment that the combined strategies will reduce risk or
otherwise more effectively achieve the desired portfolio management goal, it is
possible that the combination will instead increase such risks or hinder
achievement of the management objective.
PORTFOLIO TURNOVER
Each Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. 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, each Fund
may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by a Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
Each Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining each Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
The portfolio turnover rate for Ivy Asia Pacific Fund was significantly
higher in 1999 than it was in 1998 because of a significant increase in the
performance of the Hong Kong market in 1999. The portfolio turnover rate for Ivy
Global Natural Resources Fund was significantly higher in 1999 than it was in
1998 because of a significant increase in the sale of shares of that Fund. The
portfolio turnover rate for Ivy International Small Companies Fund was
significantly higher in 1999 than it was in 1998 because of a significant
increase in the net assets of that Fund.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
<PAGE>
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Frontage Road Corp. (instruments and
Wilmington, MA 01810 controls); Director, Burr-Brown
Age: 76 Corp. (operational amplifiers);
Director, Mass. High Tech.
Council; Trustee of Mackenzie
Series Trust (1992-1998).
James W. Broadfoot* President and President, Ivy Management, Inc.
700 South Federal Highway Trustee (1997 - present); Executive Vice
Suite 300 President, Ivy Management, Inc.
Boca Raton, FL 33432 (1996-1997); Senior Vice
Age: 57 President, Ivy Management, Inc.
(1992-1996); Director and Senior
Vice President, Mackenzie
Investment Management Inc.
(1995-present); Senior Vice
President, Mackenzie Investment
Management Inc. (1990-1995);
President and Trustee, Mackenzie
Solutions (1999-2000).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 50 Broyhill Family Foundation, Inc.
Lenoir, NC 28645 (1983-present); Chairman,
Age: 76 Broyhill Investments, Inc.
(1997-present); Chairman and
President, Broyhill Investments,
Inc. (1983-1997); Chairman,
Broyhill Timber Resources
(1983-present); Management of a
personal portfolio of
fixed-income and equity
instruments (1983-present);
Trustee of Mackenzie Series
Trust (1988-1998); Director of
The Mackenzie Funds Inc.
(1988-1995).
Keith J. Carlson* Chairman and President, Chief Executive
700 South Federal Hwy. Trustee Officer and Director, Mackenzie
Suite 300 Investment Management Inc.
Boca Raton, FL 33432 (1999-present); Executive Vice
Age: 43 President and Chief Operating
Officer, Mackenzie Investment
Management Inc. (1997-1999);
Senior Vice President, Mackenzie
Investment Management Inc.
(1996-1997); Senior Vice
President and Director,
Mackenzie Investment Management
Inc. (1994-1996); Chairman,
Senior Vice President and
Director, Ivy Management, Inc.
(1994-present); Vice President,
The Mackenzie Funds Inc.
(1987-1995); Director, Ivy
Mackenzie Services Corp.
(1993-present); Senior Vice
President and Director, Ivy
Mackenzie Services Corp.
(1996-1997); President and
Director, Ivy Mackenzie Services
Corp. (1993-1996); Trustee and
President, Mackenzie Series
Trust (1996-1998); Vice
President, Mackenzie Series
Trust (1994-1996); President,
Chief Executive Officer and
Director, Ivy Mackenzie
Distributors, Inc. (1994-
present); Chairman, Trustee and
Principal Executive Officer,
Mackenzie Solutions (1999-2000);
President and Trustee, Mackenzie
Solutions (1999).
Stanley Channick Trustee President and Chief Executive
11 Bala Avenue Officer, The Whitestone
Bala Cynwyd, PA 19004 Corporation (insurance agency);
Age: 76 Chairman, Scott Management
Company (administrative services
for insurance companies);
President, The Channick Group
(consultants to insurance
companies and national trade
associations); Trustee,
Mackenzie Series Trust
(1994-1998); Director, The
Mackenzie Funds Inc.
(1994-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory of Physics Physics, Harvard University
Harvard University (1974-present); Trustee.
Cambridge, MA 02138 Mackenzie Series Trust
Age: 74 (1994-1998).
Dianne Lister Trustee President and Chief Executive
555 University Avenue Officer, The Hospital for Sick
Toronto, Ontario Canada Children Foundation (1993-
M5G 1X8 present).
Age: 47
Joseph G. Rosenthal Trustee Chartered Accountant (1958-
100 Jardine Drive present); Trustee, Mackenzie
Unit #12 Series Trust (1985-1998);
Concord, Ontario Canada Director, The Mackenzie Funds
L4K 2T7 Inc. (1987-1995).
Age: 65
Richard N. Silverman Trustee Honorary Trustee,
18 Bonnybrook Road Newton-Wellesley Hospital;
Waban, MA 02468 Overseer, Beth Israel Hospital;
Age: 76 Trustee, Boston Ballet;
Overseer, Boston Children's
Museum; Trustee, Ralph Lowell
Society WGBH; Trustee, Newton
Wellesley Charitable Foundation.
Trustee Chairman and Chief Executive
J. Brendan Swan Officer, Airspray International,
4701 North Federal Hwy. Inc.; Joint Managing Director,
Suite 465 Airspray N.V. (an
Pompano Beach, FL 33064 environmentally sensitive
Age: 70 packaging company); Director,
Polyglass LTD.; Director, Park
Towers International; Director,
The Mackenzie Funds Inc.
(1992-1995); Trustee, Mackenzie
Series Trust (1992-1998).
Edward M. Tighe Trustee Chief Executive Officer, CITCO
P.O. Box 2160 Technology Management, inc.
Ft. Lauderdale, FL 33303 ("CITCO") (computer software
Age: 57 development and consulting)
(1999-2000); 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 Secretary/Treasurer and
Suite 300 Compliance Officer, Mackenzie
Boca Raton, FL 33432 Investment Management Inc.
Age: 55 (2000-present); Senior Vice
President, Chief Financial
Officer Secretary/Treasurer and
Compliance Officer, Mackenzie
Investment Management Inc.
(1995-2000); Senior Vice
President, Secretary/Treasurer,
Compliance Officer and Clerk,
Ivy Management, Inc.
(1994-present); Senior Vice
President, Secretary/Treasurer
and Director, Ivy Mackenzie
Distributors, Inc.
(1994-present); Director,
President and Chief Executive
Officer, Ivy Mackenzie Services
Corp. (1997-present); President
and Director, Ivy Mackenzie
Services Corp. (1996-1997);
Secretary/Treasurer and
Director, Ivy Mackenzie Services
Corp. (1993-1996);
Secretary/Treasurer, The
Mackenzie Funds Inc.
(1993-1995);
Secretary/Treasurer, Mackenzie
Series Trust (1994-1998);
Secretary/Treasurer, Mackenzie
Solutions (1999-2000).
* Deemed to be an "interested person" (as defined under the 1940 Act) of the
Trust.
<PAGE>
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1999)
PENSION OR TOTAL COMPEN-
AGGREGATE RETIREMENT ESTIMATED SATION FROM
COMPENSA- BENEFITS ACCRUED ANNUAL TRUST AND FUND
FROM AS PART OF BENEFITS UPON COMPLEX PAID
NAME, POSITION TRUST FUND EXPENSES RETIREMENT TO TRUSTEES*
John S. Anderegg, Jr. $21,500 N/A N/A $21,500
(Trustee)
James W. Broadfoot $0 N/A N/A $0
(Trustee and President)
Paul H. Broyhill $20,500 N/A N/A $20,500
(Trustee)
Keith J. Carlson $0 N/A N/A $0
(Trustee and Chairman)
Stanley Channick $21,500 N/A N/A $21,500
(Trustee)
Roy J. Glauber $21,500 N/A N/A $21,500
(Trustee)
Dianne Lister $0 N/A N/A $0
(Trustee)
Joseph G. Rosenthal $21,500 N/A N/A $21,500
(Trustee)
Richard N. Silverman $21,500 N/A N/A $21,500
(Trustee)
J. Brendan Swan $21,500 N/A N/A $21,500
(Trustee)
Edward M. Tighe $1,000 N/A N/A $1,000
(Trustee)
C. William Ferris $0 N/A N/A $0
(Secretary/
Treasurer)
* The Fund complex consists of Ivy Fund.
As of April 6, 2000, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the eighteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 1.02% and 1.25% of Ivy European Opportunities Fund and Ivy
Global Science & Technology Fund Class A shares, respectively, and 1.13%, 5.98%,
2.05% and 3.00% of Ivy European Opportunities Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, and Ivy US Emerging Growth Fund
Advisor Class shares, respectively.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI, HENDERSON, MFC AND THE
TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business
Conduct Policy, MFC has adopted a Business Conduct Policy for Officers,
Directors and Access Persons and Henderson has incorporated a code of ethics
into its Compliance and Procedures Manual (the "Codes of Ethics") which are each
designed to identify and address certain conflicts of interest between personal
investment activities and the interests of investment advisory clients such as
each Fund, in compliance with Rule 17j-1 under the 1940 Act. The Codes of Ethics
permit personnel of IMI, IMDI, Henderson, MFC and the Trust subject to the Codes
of Ethics to engage in personal securities transactions, including with respect
to securities held by one or more Funds, subject to certain requirements and
restrictions.
PRINCIPAL HOLDERS OF SECURITIES
To the knowledge of the Trust as of April 6, 2000, no shareholder owned
beneficially or of record 5% or more of any Fund's outstanding shares of any
class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of:
Ivy Asia Pacific Fund, Northern Trust Custodian FBO W. Hall Wendel
Jr., P.O. Box 92956 Chicago, IL 60675, owned of record 127,877.238 shares
(34.67%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL Jacksonville,
FL 32246, owned of record 57,697.052 shares (15.64%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL 32246, owned of record 991,944.251 shares (13.33%);
Ivy Pacific Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 88,810.181 shares (7.43%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 733,792.800 shares
(25.95%);
Ivy Global Natural Resources Fund, Carn & Co. 02087502 Riggs Bank TTEE
FBO Yazaki Employee Savings and Retirement PL, Attn: Star Group, P.O. Box 96211
Washington, DC 20090-6211 owned of record 60,160.879 shares (9.99%);
Ivy International Fund, Charles Schwab & Co. Inc. Reinvest Account,
Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned
of record 8,648,661.843 shares (30.25%) and Merrill Lynch Pierce Fenner & Smith
For the Sole Benefit of Its Customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,025,817.607
(21.07%);
Ivy International Value Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E, 3rd FL, Jacksonville, FL 32246 owned of record 901,733.310 shares (32.27%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998 owned of
record 19,811.507 shares (16.64%), Mackenzie Investment Management Inc., Attn:
Bev Yanowitch,Via Mizner Financial Plaza, 700 South Federal Highway, Ste. 300,
Boca Raton, FL 33432 owned of record 10,312.921 shares (8.66%,) Parker Hunter
Inc.FBO Keshava Reddy MD Inc. Defined Benefit Pension Trust U/A DTD 2/1/80, 404
Wellington Ct., Venice, FL 34292-3157 owned of record 6,566.130 shares (5.51%),
and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers,
Attn: Fund Administration 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246,
owned of record 6,048.887 shares (5.08%);
Ivy International Strategic Bond Fund, IBT Cust Money Purch PL FBO
Frederic Neuburger, 25 Hanley Road, Liverpool, NY 13090, owned of record 877.125
shares (53.63%), Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box
2052, Jersey City, NJ 07303-9998, owned of record 758.136 shares (46.35%);
Ivy Money Market Fund, Donald Annino TTEE Pediatrician Inc. Target
Benefit Pension Plan U/A DTD 10/31/87, 61 Oxford St., Winchester, MA 01890,
owned of record 784,722.350 shares (5.36%);
Ivy US Emerging Growth Fund, F & Co. Inc. CUST FBO 401 K Plan, Attn:
Russ Pollack ADM, 125 Broad Street, New York, NY 10004-2400, owned of record
115,590.121 shares (5.28%);
Ivy Developing Markets Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (13.93%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., P.O. Box 2052 Jersey City, NJ 07303-9998, owned of
record 65,806.720 shares (7.10%), Merrill Lynch Pierce Fenner & Smith Inc.
Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL,
Jacksonville, FL 32246, owned of record 50,772.902 shares (5.48%), and Charles
Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 49,811.577 shares (5.37%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E,
3rd FL, Jacksonville, FL, owned of record 195,131.631 shares (41.83%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 1,408,235.680 shares (48.74%);
Ivy Pacific Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 130,194.917 (17.21%);
Ivy Developing Markets Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E, 3rd FL, Jacksonville, FL, owned of record 226,089.602 shares (25.66%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 590,841.655 shares (29.21%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 58,255.711 shares (11.14%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E, 3rd FL, Jacksonville, FL, owned of record 92,422.394 shares (33.65%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL,
Jacksonville, FL 32246, owned of record 144,773.250 shares (16.14%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 39,872.586 shares (9.24%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E,
3rd FL, Jacksonville, FL, owned of record 4,908,729.144 shares (46.00%);
Ivy International Value Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E, 3rd FL, Jacksonville, FL, owned of record 4,765,693.148 shares (60.44%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E, 3rd FL, Jacksonville, FL, owned of record 33,931.288 shares
(20.64%) and Parker Hunter Incorporated FBO Martha K Reddy Trustee U/A DTD
5/2/94 Martha K Reddy 1994 Living Trust Venice, FL 34292-3157, owned of record
10,022 shares (6.09 %);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: --------------------- Fund Administration,
4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL, owned of record 104,923.409
shares (14.26%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E, 3rd FL, Jacksonville, FL, owned of record 403,099.962 shares (22.91%).
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E.,
3rd FL, Jacksonville, FL, owned of record 32,150.765 shares (9.45%) and Robert
M. Ahnert & Margaret A. Ahnert JT TWROS, 624 Flamingo Dr., Ft. Lauderdale, FL
33301, owned of record 17,623.011 shares (5.18%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith For the sole
benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
FL, Jacksonville, FL, owned of record 214,807.102 shares (55.38%);
Ivy Pacific Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL ,Jacksonville, FL, owned of record 31,891.102 shares (38.76%);
Ivy Developing Markets Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E., 3rd FL, Jacksonville, FL, owned of record 74,441.265 shares (19.93%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL, Jacksonville, FL, owned of record 1,269,062.340 shares (45.54%);
Ivy Global Fund, IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San
Diego, CA 92114-1711, owned of record 3,312.662 shares (21.26%), Merrill Lynch
Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund
Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record
2,953.344 shares (18.96%), Salomon Smith Barney Inc., 333 West 34th St. - 3rd
Floor, New York, NY 10001, owned of record 1,148.182 shares (7.37%), Smith
Barney Inc. 00112701249, 388 Greenwich Street, New York, NY owned of record
1,104.870 shares (7.09%), and Smith Barney Inc. 00107866133, 388 Greenwich
Street, New York, NY owned of record 952.492 shares (6.11%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL, Jacksonville, FL owned of record 10,794.738 shares (35.64%),
Salomon Smith Barney Inc. 00129805698, 333 West 34th St. - 3rd Floor, New York,
NY 10001, owned of record 3,425.540 shares (11.30%), George I Kocerka & Mary L
Kocerka TTEE U/A DTD Feb 11 1993, George I and Mary L Kocerka TR, 3391 Pinnacle
CT., S. Palm Harbor, FL 34684-1771, owned of record 2,927.400 shares (9.66%),
Alma R Buncsak TTEE of the Alma R Buncsak Rev Trust U/A/D 11-27-95, 745 Cherokee
Path, Lake Mills, WI 53551, owned of record 2,034.101 shares (6.71%) and Raymond
James & Assoc. Inc. CSDN David C Johnson M/P, 1113 45th Ave NE, Saint
Petersburg, FL 33703-5247, owned of record 1,748.252 shares (5.77%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL,
Jacksonville, FL, owned of record 41,373.201 shares (10.50%);
Ivy Growth Fund, IBT CUST IRA FBO Joseph L Wright ,32211 Pierce Street,
Garden City, MI 48135, owned of record 4,651.187 shares (14.03%), Merrill Lynch
Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund
Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record
3,905.716 shares (11.78%), UMB Bank CUST IRA FBO Peter L Bognar, 17 Cordes
Drive, Tonawanda, NY 14221, owned of record 3,729.271 shares (11.24%), May Ann
Ash & Robert R Ash JT TEN 1119 Rundle St. Scranton, PA 18504, owned of record
2,642.230 shares (7.97%), and UMB CUST IRA FBO Ronald Wise, 45 Fordham, Buffalo,
NY 14216, owned of record 2,041.275 shares (6.15%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E.,
3rd FL, Jacksonville, FL owned of record 1,653,544.169 shares (61.44%);
Ivy International Value Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E., 3rd FL, Jacksonville, FL owned of record 2,298,844.349 shares (66.03%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record 69,403.361 shares
(71.10%);
Ivy Money Market Fund, IBT CUST R/O IRA FBO Virginia M Hambleton, 619
Winther Blvd. Nampa, ID 83651, owned of record 109,449.820 shares (12.67%),
Painewebber For The Benefit of Bruce Blank, 36 Ridge Brook Lane Stamford, CT
06903, owned of record 108,553.810 shares (12.57%), IBT CUST R/O IRA FBO Kathryn
Batko, 1823 S 139th St., Omaha, NE 68144, owned of record 82,615.230 shares
(9.56%), Bear Stearns Securities Corp. FBO 486-89241-11, 1 Metrotech Center
North, Brooklyn, NY 11201-3859, owned of record 82,615.230 shares (9.56%), Mary
K Aistrope & Mary Sue Jenkins JT TEN, 1635 N. 106th Street, Omaha, NE 68114,
owned of record 50,174.460 shares (5.80%), and Bear Stearns Securities Corp FBO
486-05954-14 1 Metrotech Center North Brooklyn, NY 11201-3859, owned of record
48,853.000 shares (5.65%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith For the
sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E.,
3rd FL, Jacksonville, FL owned of record 11,952.636 shares (6.54%) and Donaldson
Lufkin Jenrette Securities Corporation Inc. P.O. Box 2052 Jersey City, NJ
07303-9998, owned of record 10,199.831 shares (5.58%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith For
the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr.
E., 3rd FL, Jacksonville, FL owned of record 95,681.085 shares (28.55%);
CLASS I
Of the outstanding Class I shares of:
Ivy European Opportunities Fund, NFSC FEBO # RAS-469041 NFSC/FMTC IRA
FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of
record 615.012 shares (100%);
Ivy International Fund, Charles Schwab & Co. Inc. Reinvest Account,
Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned
of record 389,576.275 shares (13.74%), State Street Bank TTEE FBO Allison
Engines, 200 Newport Ave., 7th Floor, North Quincy, MA 02171, owned of record
327,350.589 shares (11.54%), Lynspen and Company For Reinvestment, P.O. Box
83084, Birmingham, AL 35283, owned of record 252,973.459 shares (8.92%),
Harleysville Mutual Ins. Co/Equity, 355 Maple Ave., Harleysville, PA 19438,
owned of record 191,304.895 shares (6.74%), Northern Trust Co. TTEE of The Great
Lakes Chemical RTMT Trust A/C # 22-37152, P.O. Box 92956, 801 S. Canal St. C1S,
Chicago, IL 60675-2956, owned of record 181,365.292 shares (5.98%), S. Mark
Taper Foundation, 12011 San Vincente Blvd., Ste 400, Los Angeles, CA 90049,
owned of record 169,779.308 shares (5.98%), and Vanguard Fiduciary Trust Company
FBO Investment & Employee Stock Ownership Plan of Avista Corp. # 92094, P.O. Box
2600, VM 613, Attn: Outside Funds, Valley Forge, PA 19482, owned of record
154,798.565 shares (5.45%);
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Asia Pacific Fund, Brown Brothers Harriman & Co. CUST,
International Solutions IV- Long Term Growth, Attn: Terron McGovern, 40 Water
St. Boston, MA 02109, owned of record 19,521.431 shares (73.06%), Brown Brothers
Harriman & Co. CUST International Solutions V- Aggressive Growth, Attn: Terron
McGovern, 40 Water St. Boston, MA 02109, owned of record 5,387.835 shares
(20.17%), Brown Brothers Harriman & Co. CUST International Solutions II -
Balanced Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned
of record 1,602.659 shares (6.00%);
Ivy Bond Fund, Donaldson Lufkin Jenrette Securities Corporation Inc.,
P.O. Box 2052 Jersey City, NJ 07303-9998, owned of record 8,890.147 shares
(26.19%), NFSC FEBO # 279-055662 C. William Ferris/Michael Landry/Keith Carlson
U/A 01/01/98, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of
record 6,564.613 shares (19.34%), Donaldson Lufkin Jenrette Securities
Corporation Inc. P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record
5,383.304 shares (15.85%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 2,366.810
shares (6.97%);
Ivy Pacific Opportunities Fund, Brown Brothers Harriman & Co. CUST
International Solutions IV- Long Term Growth, Attn: Terron McGovern, 40 Water
St. Boston, MA 02109, owned of record 32,622.646 shares (61.95%), Brown Brothers
Harriman & Co. CUST International Solutions III - Moderate Growth, Attn: Terron
McGovern, 40 Water Street, Boston, MA 02109, owned of record 9,740.980 shares
(18.49%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL,
Jacksonville, FL owned of record 5,243.316 shares (9.95%), and Brown Brothers
Harriman & Co. CUST International Solutions V - Aggressive Growth, Attn: Terron
McGovern, 40 Water Street, Boston, MA 02109, owned of record 3,240.952 shares
(6.15%);
Ivy Developing Markets Fund, Brown Brothers Harriman & Co. CUST
International Solutions IV - Long Term Growth, Attn: Terron McGovern, 40 Water
Street, Boston, MA 02109, owned of record 29,259.893 shares (56.59%), NFSC FEBO
# 279-055662 C. William Ferris/Michael Landry/Keith Carlson U/A 01/01/98, 700
South Federal Highway, Boca Raton, FL 33432-6114, owned of record 15,597.547
shares (30.16%), and Brown Brothers Harriman & Co. CUST International Solutions
V - Aggressive Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109,
owned of record 5,809.684 shares (11.23%);
Ivy European Opportunities Fund, Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Dr. E., 3rd FL, Jacksonville, FL owned of record 857,967.359 shares (77.29%) and
Pyramid I Limited Partnership C/O Roland Manarin, 11650 Dodge Rd., Omaha, NE
68154, owned of record 55,972.256 shares (5.04%);
Ivy Global Fund, NFSC FEBO # 279-055662 C. William Ferris/Michael
Landry/Keith Carlson U/A 01/01/98 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 12,646.539 shares (100%);
Ivy Global Natural Resources Fund, NFSC FEBO # 279-055662 C. William
Ferris/Michael Landry/Keith Carlson U/A 01/01/98, 700 South Federal Highway,
Boca Raton, FL 33432-6114, owned of record 1,943.284 shares (66.05%), Donaldson
Lufkin Jenrette Securities Corporation Inc. P.O. Box 2052 Jersey City, NJ
07303-9998, owned of record 822.637 shares (27.96%), and Edward M. Tighe, P.O.
Box 2160, Ft. Lauderdale, FL 33303, owned of record 175.788 shares (5.97%);
Ivy Global Science & Technology Fund, Robert Chapin & Michelle
Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove,
Boca Raton, FL 33432, owned of record 3,345.624 shares (19.60%), Merrill Lynch
Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund
Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record
1,675.999 shares (9.81%), Donaldson Lufkin Jenrette Securities Corporation Inc.,
P.O. Box 2052 Jersey City, NJ 07303-9998, owned of record 1,675.999 shares
(9.81%), Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052
Jersey City, NJ 07303-9998, owned of record 1,061.784 shares (6.22%), and
Michele C. Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of
record 1,061.586 shares (6.21%);
Ivy Growth Fund, NFSC FEBO # 279-055662 C. William Ferris/Michael
Landry/Keith Carlson U/A 01/01/98, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 19,148.030 shares (99.41%);
Ivy International Value Fund, Brown Brothers Harriman & Co. CUST
International Solutions IV - Long Term Growth, Attn: Terron McGovern, 40 Water
Street, Boston, MA 02109, owned of record 35,889.863 shares (24.70%), Charles
Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 26,271.557 shares (18.08%) and
Brown Brothers Harriman & Co. CUST International Solutions III - Moderate
Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned of
record 23,078.909 shares (15.88%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith For the sole benefit of its customers, Attn: Fund Administration, 4800
Deer Lake Dr. E., 3rd FL, Jacksonville, FL owned of record 16,327.134 shares
(37.27%), Brown Brothers Harriman & Co. CUST International Solutions IV - Long
Term Growth, Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned of
record 14,667.380 shares (33.48%), Brown Brothers Harriman & Co. CUST
International Solutions III - Moderate Growth, Attn: Terron McGovern, 40 Water
Street, Boston, MA 02109, owned of record 9,262.050 shares (21.14%), and Brown
Brothers Harriman & Co. CUST International Solutions V - Aggressive Growth,
Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned of record
2,403.696 shares (5.48%);
Ivy International Strategic Bond Fund, Mackenzie Investment Management
Inc. Attn: Bev Yanowitch, Via Mizner Financial Plaza, 700 S. Federal Hwy., Ste.
300, Boca Raton, FL 33432, owned of record 106,161.036 shares (73.22%), Brown
Brothers Harriman & Co. CUST International Solutions III - Moderate Growth,
Attn: Terron McGovern, 40 Water Street, Boston, MA 02109, owned of record
24,135.915 shares (16.64), Brown Brothers Harriman & Co. CUST International
Solutions I - Conservative Growth, Attn: Terron McGovern, 40 Water Street,
Boston, MA 02109, owned of record 7,998.962 shares (5.51%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc. Attn: Bev
Yanowitch, Via Mizner Financial Plaza, 700 S. Federal Hwy., Ste. 300, Boca
Raton, FL 33432, owned of record 50,392.878 shares (67.45%), NFSC FEBO #
279-055662 C. William Ferris/Michael Landry/Keith Carlson U/A 01/01/98, 700
South Federal Highway, Boca Raton, FL 33432-6114, owned of record 19,514.840
shares (26.12%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual
Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record
4,144.193 shares (5.54%);
Ivy US Emerging Growth Fund, NFSC FEBO # 279-055662 C. William
Ferris/Michael Landry/Keith Carlson U/A 01/01/98 700 South Federal Highway, Boca
Raton, FL 33432-6114, owned of record 27,214.448 shares (63.24%), Charles Schwab
& Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 8,850.972 shares (20.57%), Mackenzie
Investment Management Inc., Attn: Bev Yanowitch, Via Mizner Financial Plaza, 700
S. Federal Hwy., Ste. 300, Boca Raton, FL 33432, owned of record 50,392.878
shares (67.45%), NFSC FEBO # 279-055662 C. William Ferris/Michael Landry/Keith
Carlson U/A 01/01/98 700 South Federal Highway, Boca Raton, FL 33432-6114, owned
of record 19,514.840 shares (26.12%), and Charles Schwab & Co. Inc. Reinvest
Account, Attn: Mutual Fund Dept., 101 Montgomery St. San Francisco, CA 94104,
owned of record 4,144.193 shares (5.54%).
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario and whose shares are listed for trading on the TSE.
MFC provides investment advisory services to Ivy Global Natural Resources Fund
pursuant to an Investment Advisory Agreement, and IMI provides business
management and investment advisory services to each of the other Funds pursuant
to a Business Management and Investment Advisory Agreement (each an
"Agreement"). IMI provides business management services to Ivy Global Natural
Resources Fund pursuant to a Business Management Agreement (the "Management
Agreement"). IMI also currently acts as manager and investment adviser to the
other series of Ivy Fund.
The Agreements obligate IMI and MFC to make investments for the account
of each Fund in accordance with its best judgment and within the investment
objectives and restrictions set forth in the Prospectus, the 1940 Act and the
provisions of the Code relating to regulated investment companies, subject to
policy decisions adopted by the Board. IMI and MFC also determine the securities
to be purchased or sold by each Fund and place orders with brokers or dealers
who deal in such securities.
Under the IMI Agreement and the Management Agreement, IMI also provides
certain business management services. IMI is obligated to (1) coordinate with
each Fund's Custodian and monitor the services it provides to each Fund; (2)
coordinate with and monitor any other third parties furnishing services to each
Fund; (3) provide each Fund with necessary office space, telephones and other
communications facilities as are adequate for the Fund's needs; (4) provide the
services of individuals competent to perform administrative and clerical
functions that are not performed by employees or other agents engaged by each
Fund or by IMI acting in some other capacity pursuant to a separate agreement or
arrangements with the Fund; (5) maintain or supervise the maintenance by third
parties of such books and records of the Trust as may be required by applicable
Federal or state law; (6) authorize and permit IMI's directors, officers and
employees who may be elected or appointed as trustees or officers of the Trust
to serve in such capacities; and (7) take such other action with respect to the
Trust, after approval by the Trust as may be required by applicable law,
including without limitation the rules and regulations of the SEC and of state
securities commissions and other regulatory agencies. IMI is also responsible
for reviewing the activities of MFC to ensure that Ivy Global Natural Resources
Fund is operated in compliance with its investment objectives and policies and
with the 1940 Act.
Henderson Investment Management Limited ("Henderson"), 3 Finsbury
Avenue, London, England EC2M 2PA, serves as subadviser to Ivy European
Opportunities Fund under a subadvisory agreement with IMI. For its services,
Henderson receives a fee from IMI that is equal, on an annual basis, to .22% of
the Fund's average net assets. Since February 1, 1999, Henderson has also served
as subadviser with respect to 50% of the net assets of Ivy International Small
Companies Fund, for which Henderson receives a fee from IMI that is equal, on an
annual basis, to .22% of that portion of the Fund's assets that Henderson
manages. Henderson is an indirect, wholly owned subsidiary of AMP Limited, an
Australian life insurance and financial services company located in New South
Wales, Australia.
Ivy Global Natural Resources Fund pays IMI a monthly fee for providing
business management services at an annual rate of 0.50% of the Fund's average
net assets. For investment advisory services, Ivy Global Natural Resources Fund
pays MFC, through IMI, a monthly fee at an annual rate of 0.50% of its average
net assets.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Global Natural Resources Fund paid IMI fees of $32,056, $20,977 and $35,984,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
IMI reimbursed Fund expenses in the amount of $25,180, $147,952 and $170,530,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
the Fund paid MFC fees of $32,056, $20,977 and $35,984, respectively.
Each other Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of 1.00% of the
Fund's average net assets.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Asia Pacific Fund paid IMI fees of $10,473, $49,509 and $72,724, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, IMI reimbursed
Fund expenses of $10,473, $167,194 and $119,280, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Pacific Opportunities Fund paid IMI fees of $277,601, $187,381 and $191,792,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
IMI reimbursed Fund expenses of $18,377, $105,095 and $125,910, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Developing Markets Fund paid IMI fees of $284,290, $156,166 and $152,772,
respectively. During the fiscal years ended December 31, 1997, 1998 and 1999,
IMI reimbursed Fund expenses of $22,860, $200,839 and $149,367, respectively.
During the period from commencement (May 3, 1999) through December 31,
1999, Ivy European Opportunities Fund paid IMI fees of $27,735. During the same
period, IMI reimbursed Fund expenses in the amount of $107,722.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Global Fund paid IMI fees of $383,981, $275,958 and $202,715, respectively.
During the same periods, IMI reimbursed Fund expenses in the amount of $0,
$98,102 and $120,751, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
Global Science & Technology Fund paid IMI fees of $229,616, $280,079 and
$466,093, respectively. During the same periods, IMI reimbursed Fund expenses in
the amount of $0, $0 and $0, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal years ended December 31, 1998 and 1999, Ivy
International Value Fund paid IMI fees of $413,862, $1,356,028 and $1,533,107,
respectively. During the same periods, IMI reimbursed Fund expenses in the
amount of $123,177, $186,536 and $226,984, respectively.
During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy
International Small Companies Fund paid IMI fees of $28,799, $34,504 and
$28,729, respectively. During the same periods, IMI reimbursed Fund expenses in
the amount of $28,799, $134,787 and $178,983, respectively.
Under the Agreements, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
With respect to all Funds other than Ivy Global Science and Technology
Fund, IMI currently limits each Fund's total operating expenses (excluding Rule
12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification expenses, and extraordinary expenses) to an annual
rate of 1.95% (1.50% in the case of Ivy International Value Fund) of that Fund's
average net assets, which may lower each Fund's expenses and increase its yield.
The Agreements will continue in effect with respect to each Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected with respect to each Fund only if approved by the affirmative
vote of a majority of the outstanding voting securities of that Fund. See
"Capitalization and Voting Rights."
The Agreements may be terminated with respect to each Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of a Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. Each
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of each Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of each Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Each Fund has authorized IMDI to accept on its behalf purchase and
redemption orders. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on each Fund's behalf. Each Fund will be
deemed to have received a purchase or redemption order when an authorized
intermediary or, if applicable, an intermediary's authorized designee, accepts
the order. Client orders will be priced at each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Under the Distribution Agreement, each Fund bears, among other
expenses, the expenses of registering and qualifying its shares for sale under
Federal and state securities laws and preparing and distributing to existing
shareholders periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of each
Fund. The Distribution Agreement may be terminated with respect to any Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by a Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
If the Distribution Agreement is terminated (or not renewed) with
respect to any of the Ivy funds (or class of shares thereof), it may continue in
effect with respect to any other fund (or class of shares thereof) as to which
it has not been terminated (or has been renewed).
RULE 18f-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund
represent an equal pro rata interest in that Fund and generally have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications, terms and conditions, except that
each class bears certain class-specific expenses and has separate voting rights
on certain matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of another
class; (ii) subject to certain limitations described in the Prospectus, shares
of a particular class of each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that Fund after a period of eight years,
based on the relative net asset value of such shares at the time of conversion.
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of each Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of each Fund's foreign securities. With
respect to each Fund, the Custodian may receive, as partial payment for its
services to each Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund
paid MIMI $20,305 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Pacific
Opportunities Fund paid MIMI $36,086 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Developing Markets
Fund paid MIMI $35,656 under the agreement.
During the fiscal year ended December 31, 1999, Ivy European
Opportunities Fund paid MIMI $11,488 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Global Fund paid
MIMI $36,499 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Global Natural
Resources Fund paid MIMI $23,905 under the agreement.
During the fiscal year ended December 31, 1999, Ivy Global Science &
Technology Fund paid MIMI $57,838 under the agreement.
During the fiscal year ended December 31, 1999, Ivy International Value
Fund paid MIMI $102,828 under the agreement.
During the fiscal year ended December 31, 1999, Ivy International Small
Companies Fund paid MIMI $20,669 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC,
a wholly owned subsidiary of MIMI located at Via Mizner Financial Plaza, Suite
300, 700 S. Federal Highway, Boca Raton, Florida 33432, is the transfer agent
for each Fund. Under the Agreement, each Fund pays a monthly fee at an annual
rate of $20.00 for each open Class A, Class B, Class C and Advisor Class
account. Each Fund with Class I shares pays a monthly fee at an annual rate of
$10.25 per open Class I account. In addition, each Fund pays a monthly fee at an
annual rate of $4.70 per account that is closed plus certain out-of-pocket
expenses. Such fees and expenses for the fiscal year ended December 31, 1999 for
Ivy Asia Pacific Fund totaled $22,560. Such fees and expenses for the fiscal
year ended December 31, 1999 for Ivy Pacific Opportunities Fund totaled $98,352.
Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy
Developing Markets Fund totaled $68,986. Such fees and expenses for the fiscal
year ended December 31, 1999 for Ivy European Opportunities Fund totaled $1,888.
Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy
Global Fund totaled $64,932. Such fees and expenses for the fiscal year ended
December 31, 1999 for Ivy Global Natural Resources Fund totaled $38,990. Such
fees and expenses for the fiscal year ended December 31, 1999 for Ivy Global
Science & Technology Fund totaled $93,208. Such fees and expenses for the fiscal
year ended December 31, 1999 for Ivy International Value Fund totaled $412,362.
Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy
International Small Companies Fund totaled $10,849. Certain broker-dealers that
maintain shareholder accounts with each Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. Each Fund with
Class I shares pays MIMI a monthly fee at the annual rate of 0.01% of its
average daily net assets for Class I. Such fees for the fiscal year ended
December 31, 1999 for Ivy Asia Pacific Fund totaled $7,272. Such fees for the
fiscal year ended December 31, 1999 for Ivy Pacific Opportunities Fund totaled
$19,179. Such fees for the fiscal year ended December 31, 1999 for Ivy
Developing Markets Fund totaled $15,277. Such fees for the fiscal year ended
December 31, 1999 for Ivy European Opportunities Fund totaled $2,774. Such fees
for the fiscal year ended December 31, 1999 for Ivy Global Fund totaled $20,271.
Such fees for the fiscal year ended December 31, 1999 for Ivy Global Natural
Resources Fund totaled $7,197. Such fees for the fiscal year ended December 31,
1999 for Ivy Global Science & Technology Fund totaled $46,609. Such fees for the
fiscal year ended December 31, 1999 for Ivy International Value Fund totaled
$153,311. Such fees for the fiscal year ended December 31, 1999 for Ivy
International Small Companies Fund totaled $2,857.
AUDITORS
PricewaterhouseCoopers LLP, located at 200 E. Las Olas Boulevard, Suite
1700, Fort Lauderdale, Florida 33301, has been selected as independent certified
public accountants for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI,
Henderson (for Ivy European Opportunities Fund and a portion of Ivy
International Small Companies Fund's portfolio), or MFC (for Ivy Global Natural
Resources Fund) (the "Advisers"), places orders for the purchase and sale of
each Fund's portfolio securities. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Purchases and sales of debt securities are usually principal
transactions and therefore, brokerage commissions are usually not required to be
paid by the Funds for such purchases and sales (although the price paid
generally includes undisclosed compensation to the dealer). The prices paid to
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter, and purchases of after-market securities from dealers
normally reflect the spread between the bid and asked prices. In connection with
OTC transactions, the Advisers attempt to deal directly with the principal
market makers, except in those circumstances where the Advisers believe that a
better price and execution are available elsewhere.
The Advisers select broker-dealers to execute transactions and evaluate
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 the Advisers in
servicing all of their accounts. In addition, not all of these services may be
used by the Advisers in connection with the services they provide to the Fund or
the Trust. The Advisers may consider sales of shares of Ivy funds as a factor in
the selection of broker-dealers and may select broker-dealers who provide them
with research services. The Advisers may choose broker-dealers that provide the
Advisers with research services and may cause a client to pay such
broker-dealers commissions which exceed those other broker-dealers may have
charged, if the Advisers view the commissions as reasonable in relation to the
value of the brokerage and/or research services. The Advisers will not, however,
seek to execute brokerage transactions other than at the best price and
execution, taking into account all relevant factors such as price, promptness of
execution and other advantages to clients, including a determination that the
commission paid is reasonable in relation to the value of the brokerage and/or
research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Asia
Pacific Fund paid brokerage commissions of $18,500 and $75,104, respectively.
For the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund paid a total
of $18,953 in brokerage commissions with respect to portfolio transactions
aggregating $3,153,247. Of such amount, $2,996 in brokerage commissions with
respect to portfolio transactions aggregating $459,177 was placed with
broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Pacific
Opportunities Fund paid brokerage commissions of $70,846 and $112,289,
respectively. For the fiscal year ended December 31, 1999, Ivy Pacific
Opportunities Fund paid a total of $55,717 in brokerage commissions with respect
to portfolio transactions aggregating $11,400,341. Of such amount, $17,491 in
brokerage commissions with respect to portfolio transactions aggregating
$3,320,987 was placed with broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy
Developing Markets Fund paid brokerage commissions of $170,306 and $83,565,
respectively. For the fiscal year ended December 31, 1999, Ivy Developing
Markets Fund paid a total of $70,916 in brokerage commissions with respect to
portfolio transactions aggregating $13,688,029. Of such amount, $14,441 in
brokerage commissions with respect to portfolio transactions aggregating
$2,549,170 was placed with broker-dealers who provided research services.
During the period from commencement of operations (May 3, 1999) through
December 31, 1999, Ivy European Opportunities Fund paid brokerage commissions of
$36,908 with respect to portfolio transactions aggregating $25,070,411.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Fund paid brokerage commissions of $123,985 and $76,661, respectively. For the
fiscal year ended December 31, 1999, Ivy Global Fund paid a total of $83,384 in
brokerage commissions with respect to portfolio transactions aggregating
$28,029,168. Of such amount, $24,828 in brokerage commissions with respect to
portfolio transactions aggregating $13,101,081 was placed with broker-dealers
who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Natural Resources Fund paid brokerage commissions of $128,646 and $49,752,
respectively. For the fiscal year ended December 31, 1999, Ivy Global Natural
Resources Fund paid a total of $78,249 in brokerage commissions with respect to
portfolio transactions aggregating $21,724,929. Of such amount, $120 in
brokerage commissions with respect to portfolio transactions aggregating $15,161
was placed with broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Science & Technology Fund paid brokerage commissions of $99,546 and $110,302,
respectively. For the fiscal year ended December 31, 1999, Ivy Global Science &
Technology Fund paid a total of $106,161 in brokerage commissions with respect
to portfolio transactions aggregating $68,575,514. Of such amount, $5,974 in
brokerage commissions with respect to portfolio transactions aggregating
$6,485,831 was placed with broker-dealers who provided research services.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, Ivy
International Value Fund paid brokerage commissions of $332,022 and $225,584,
respectively. For the fiscal year ended December 31, 1999, Ivy International
Value Fund paid a total of $224,332 in brokerage commissions with respect to
portfolio transactions aggregating $72,344,904. Of such amount, $67,438 in
brokerage commissions with respect to portfolio transactions aggregating
$22,354,787 was placed with broker-dealers who provided research services.
During the fiscal years ended December 31, 1997 and 1998, Ivy
International Small Companies Fund paid brokerage commissions of $14,913 and
$5,087, respectively. For the fiscal year ended December 31, 1999, Ivy
International Small Companies Fund paid a total of $15,777 in brokerage
commissions with respect to portfolio transactions aggregating $5,899,377. Of
such amount, $1,360 in brokerage commissions with respect to portfolio
transactions aggregating $203,688 was placed with broker-dealers who provided
research services.
Brokerage commissions vary from year to year in accordance with the
extent to which a particular Fund is more or less actively traded.
Each Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. Each Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that the Advisers deem to be a desirable investment for
each Fund. While no minimum has been established, it is expected that each Fund
will not accept securities having an aggregate value of less than $1 million.
The Trust may reject in whole or in part any or all offers to pay for any Fund
shares with securities and may discontinue accepting securities as payment for
any Fund shares at any time without notice. The Trust will value accepted
securities in the manner and at the same time provided for valuing portfolio
securities of each Fund, and each Fund shares will be sold for net asset value
determined at the same time the accepted securities are valued. The Trust will
only accept securities delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by the
Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Declaration of Trust of the Trust permits the Trustees to create
separate series or portfolios and to divide any series or portfolio into one or
more classes. The Trustees have authorized eighteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy Money Market Fund, and Class A, Class B,
Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy
Pacific Opportunities Fund, Ivy Cundill Value Fund, Ivy Developing Markets Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International
Fund, Ivy International Value Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth
Fund and Ivy Next Wave Internet Fund, as well as Class I shares for Ivy Bond
Fund, Ivy Cundill Value Fund, Ivy European Opportunities Fund, Ivy Global
Science & Technology Fund, Ivy International Value Fund, Ivy International Fund,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy US Blue Chip Fund and Ivy Next Wave Internet Fund. Under the Declaration of
Trust, the Trustees may terminate any Fund without shareholder approval. This
might occur, for example, if a Fund does not reach or fails to maintain an
economically viable size.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent certified
public accountants, will be voted upon collectively by the shareholders of all
funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of
the shares of that Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of that Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by a Fund, the matter shall have been effectively
acted upon with respect to that Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of any Fund held personally liable for the
obligations of that Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Funds, whose shares are also distributed by IMDI. These funds
are: Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Growth Fund, Ivy International
Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy US Blue
Chip Fund and Ivy US Emerging Growth Fund and Ivy Next Wave Internet Fund (the
other nine 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 a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $250 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
See "Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of each Fund have an
exchange privilege with other Ivy funds. Before effecting an exchange,
shareholders of a Fund should obtain and read the currently effective prospectus
for the Ivy fund into which the exchange is to be made.
Advisor Class shareholders may exchange their outstanding Advisor Class
shares for Advisor Class shares of another Ivy Fund on the basis of the relative
net asset value per share. The minimum value of Advisor Class shares which may
be exchanged into an Ivy fund in which shares are not already held is $10,000.
No exchange out of any Fund (other than by a complete exchange of all Fund
shares) may be made if it would reduce the shareholder's interest in the Advisor
Class shares of that Fund to less than $10,000.
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, an
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 Agreement. There is no set-up fee for qualified plans and the
annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically (minimum distribution amount -
$250), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must continually maintain
an account balance of at least $10,000. A Withdrawal Plan may not be established
if the investor is currently participating in the Automatic Investment Method. A
Withdrawal Plan may involve the depletion of a shareholder's principal,
depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $250 each while the Withdrawal Plan is in effect.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of a Fund are purchased in conjunction with
IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
REDEMPTIONS
Shares of each Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by a Fund is not reasonably practicable or it is
not reasonably practicable for a Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of any Fund.
Under unusual circumstances, when the Board deems it in the best
interest of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of that Fund taken at
current values. If any such redemption in kind is to be made, each Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
particular Fund to redeem with cash at a shareholder's election in any case
where the redemption involves less than $250,000 (or 1% of that Fund's net asset
value at the beginning of each 90-day period during which such redemptions are
in effect, if that amount is less than $250,000). Should payment be made in
securities, the redeeming shareholder may incur brokerage costs in converting
such securities to cash.
The Trust may redeem those Advisor Class accounts of shareholders who
have maintained an investment of less than $10,000 in any Fund for a period of
more than 12 months. All Advisor Class accounts below that minimum will be
redeemed simultaneously when MIMI deems it advisable. The $10,000 balance will
be determined by actual dollar amounts invested by the shareholder, unaffected
by market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by a Fund for up to seven
days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
Each Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, a Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining each Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted
sale price on the exchange on which the security is principally traded. If no
sale is reported at that time, the average between the last bid and asked price
(the "Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
a Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when that Fund's net asset value is calculated (see
following paragraph), such securities may be valued at fair value as determined
by IMI 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 a Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem that Fund's shares. The sale of each Fund's shares will be suspended
during any period when the determination of its net asset value is suspended
pursuant to rules or orders of the SEC and may be suspended by the Board
whenever in its judgment it is in a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to each Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in any Fund. The Funds are not managed for tax-efficiency.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, each Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. Each Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, each Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, each Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by a Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by each Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If a Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which each Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by each Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by each Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, each Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of a Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time a Fund accrues receivables or liabilities denominated in
a foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, the Fund itself may be subject to a tax on a portion
of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which a Fund held the PFIC shares. A Fund itself will be subject to tax
on the portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Certain distributions from a
PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
Each Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Each Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, each Fund generally would be required to include in its
gross income its share of the earnings of a PFIC on a current basis, regardless
of whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by each Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by each Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. Each Fund may make one
or more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by each Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, a Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. Each Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by each Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by each Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by a Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by each Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of that Fund on the distribution date. A
distribution of an amount in excess of a Fund's current and accumulated earnings
and profits will be treated by a shareholder as a return of capital which is
applied against and reduces the shareholder's basis in his or her shares. To the
extent that the amount of any such distribution exceeds the shareholder's basis
in his or her shares, the excess will be treated by the shareholder as gain from
a sale or exchange of the shares. Shareholders will be notified annually as to
the U.S. Federal tax status of distributions and shareholders receiving
distributions in the form of newly issued shares will receive a report as to the
net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of a Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the same Fund or another regulated investment company and the
otherwise applicable sales charge is reduced under a "reinvestment right"
received upon the initial purchase of Fund shares. The term "reinvestment right"
means any right to acquire shares of one or more regulated investment companies
without the payment of a sales load or with the payment of a reduced sales
charge. Sales charges affected by this rule are treated as if they were incurred
with respect to the shares acquired under the reinvestment right. This provision
may be applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by each Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, that Fund will
be eligible and may elect to "pass-through" to its shareholders the amount of
foreign income and similar taxes paid by the Fund. Pursuant to this election, a
shareholder will be required to include in gross income (in addition to taxable
dividends actually received) his or her pro rata share of the foreign income and
similar taxes paid by the Fund, and will be entitled either to deduct his or her
pro rata share of foreign income and similar taxes in computing his or her
taxable income or to use it as a foreign tax credit against his or her U.S.
Federal income taxes, subject to limitations. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions. Foreign taxes
generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of each Fund's taxable year whether the foreign taxes
paid by that Fund will "pass-through" for that year and, if so, such
notification will designate (1) the shareholder's portion of the foreign taxes
paid to each such country and (2) the portion of the dividend which represents
income derived from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if a Fund
makes the election described in the preceding paragraph, the source of that
Fund's income flows through to its shareholders. With respect to each Fund,
gains from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from each Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of a Fund are
held by the Fund or the shareholder, as the case may be, for less than 16 days
(46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if a Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
Each Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of that Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish a Fund with and to certify
the shareholder's correct taxpayer identification number or social security
number, (2) the IRS notifies the shareholder or the Fund that the shareholder
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to each Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare each Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in each Fund. Unmanaged indices may assume the reinvestment
of dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of that Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase
shares of a specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
For purposes of the above computation for each Fund, it is assumed that
all dividends and capital gains distributions made by that Fund are reinvested
at net asset value in additional Advisor Class shares during the designated
period. Standardized Return quotations for each Fund do not take into account
any required payments for federal or state income taxes. Standardized Return
quotations are determined to the nearest 1/100 of 1%.
Each Fund may, from time to time, include in advertisements,
promotional literature or reports to shareholders or prospective investors total
return data that are not calculated according to the formula set forth above
("Non-Standardized Return").
In determining the average annual total return for a specific class of
shares of each Fund, recurring fees, if any, that are charged to all shareholder
accounts are taken into consideration. For any account fees that vary with the
size of the account of each Fund, the account fee used for purposes of the
following computations is assumed to be the fee that would be charged to the
mean account size of the Fund.
The Standardized Return figures for Ivy Pacific Opportunities Fund's
Advisor Class shares for the period from inception through December 31, 1999 and
the one-year period ended December 31, 1999 were 9.01% and 46.29%, respectively.
These figures reflect expense reimbursement. Without expense reimbursement, the
Standardized Return figures would have been 8.59% and 45.91%, respectively.
The Standardized Return figures for Ivy Developing Markets Fund's
Advisor Class shares for the period from inception through December 31, 1999 and
the one-year period ended December 31, 1999 were 11.13% and 47.38%,
respectively. These figures reflect expense reimbursement. Without expense
reimbursement, the Standardized Return figures would have been 10.27% and
46.57%, respectively.
The Standardized Return figures for Ivy Global Fund's Advisor Class
shares for the period from inception through December 31, 1999 and the one-year
period ended December 31, 1999 were 8.07% and 26.77%, respectively. These
figures reflect expense reimbursement. Without expense reimbursement, the
Standardized Return figures would have been 6.71% and 24.41%, respectively.
The Standardized Return figures for Ivy Global Science & Technology
Fund's Advisor Class shares for the period from inception through December 31,
1999 and the one-year period ended December 31, 1999 were 74.87% and 122.56%,
respectively.
The Standardized Return figures for Ivy International Value Fund's
Advisor Class shares for the period from inception through December 31, 1999 and
the one-year period ended December 31, 1999 were 14.33% and 28.30%,
respectively. These figures reflect expense reimbursement. Without expense
reimbursement, the Standardized Return figures would have been 14.21% and
28.18%, respectively.
Ivy Asia Pacific Fund, Ivy European Opportunities Fund, Ivy Global
Natural Resources Fund and Ivy International Small Companies Fund had no
reportable performance information because the Advisor Class shares of these
Funds had been outstanding for less than a year as of December 31, 1999.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of a particular Fund for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment in a specific class of shares of a
Fund over such periods, according to the following formula (cumulative total
return is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase
shares of a specific class
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
The Cumulative Total Return figures for Ivy Pacific Opportunities
Fund's Advisor Class shares for the period from inception (February 10, 1998)
through December 31, 1999 and the one-year period ended December 31, 1999 were
17.68% and 46.29%, respectively.
The Cumulative Total Return figures for Ivy Developing Markets Fund's
Advisor Class shares for the period from inception (April 30, 1998) through
December 31, 1999 and the one-year period ended December 31, 1999 were 19.28%
and 47.38%, respectively.
The Cumulative Total Return figures for Ivy Global Fund's Advisor Class
shares for the period from inception (April 30, 1998) through December 31, 1999
and the one-year period ended December 31, 1999 were 13.85% and 26.77%,
respectively.
The Cumulative Total Return figures for Ivy Global Science & Technology
Fund's Advisor Class shares for the period from inception (April 15, 1998)
through December 31, 1999 and the one-year period ended December 31, 1999 were
160.37% and 122.56%, respectively.
The Cumulative Total Return figures for Ivy International Value Fund's
Advisor Class shares for the period from inception (February 23, 1998) through
December 31, 1999 and the one-year period ended December 31, 1999 were 28.10%
and 28.30%, respectively.
Ivy Asia Pacific Fund, Ivy European Opportunities Fund, Ivy Global
Natural Resources Fund and Ivy International Small Companies Fund had no
outstanding Advisor Class shares as of December 31, 1999.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for each Fund will vary from time to time
depending on market conditions, the composition of that Fund's portfolio and
operating expenses of that Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding a Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of each Fund's shares and the risks associated with each Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
Each Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
Each Fund's Portfolio of Investments as of December 31, 1999, Statement
of Assets and Liabilities as of December 31, 1999, Statement of Operations for
the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1999, Financial Highlights, Notes to
Financial Statements, and Report of Independent Certified Public Accountants,
which are included in each Fund's December 31, 1999 Annual Report to
shareholders, are incorporated by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997
Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE> 39
[LOGO] IVY FUNDS(R)
EMBRACING THE WORLD
IVY CHINA REGION FUND
SEMIANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
IVY MANAGEMENT, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432-6139
800.456.5111
JUNE 30, 2000
BOARD OF TRUSTEES
John S. Anderegg, Jr.
James W. Broadfoot
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Dianne Lister
Roy J. Glauber
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Edward M. Tighe
OFFICERS
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, Massachusetts
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, Massachusetts
TRANSFER AGENT
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, Florida 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432-6139
800.456.5111
www.ivyfunds.com
E-mail: [email protected]
[IVY MACKENZIE LOGO]
MARKET PERSPECTIVE
[PHOTO]
The Fund's goal: to provide long-term capital growth by investing in the equity
securities of companies and countries that are expected to benefit from the
economic development and growth of the China Region.
Ivy China Region Fund is managed by Ivy's International Equity team. The
following is an interview with team member and Asian equity specialist Michelle
Chan.
Q: MICHELLE, HOW WAS THE PERFORMANCE OF THE CHINA REGION IN THE FIRST HALF OF
2000?
A: Supported by an underlying economic recovery, the China region markets
-- Hong Kong, China, Taiwan and Korea -- continued an upward trend during the
first half of 2000, although volatility did increase. As in the rest of the
world, technology, media and telecommunication (TMT) stocks in the region
performed well for most of the first quarter, but experienced a sell-off in
March. The Hong Kong market, where the Fund has 62% of its assets, has become
very correlated with the technology-heavy NASDAQ. When the stocks in that index
declined in the spring, Hong Kong TMT stocks quickly followed. After the
"high-tech fever" cooled down, however, the Hong Kong market was dominated more
by concern over continuing interest rate increases in the US. Hong Kong's
currency is pegged to the dollar, and an interest rate increase in the US is
inevitably followed by an interest rate increase in Hong Kong. The Taiwanese
market experienced quite a bit of volatility prior to its recent presidential
elections. Political issues during the presidential campaign and controversy on
the mainland led to substantial nervousness and a sell-off in the Taiwanese
market. The new government, however, seems to be conciliatory on issues that
affect Mainland China, which we believe is a good sign.
Q: WHAT'S BEEN HAPPENING IN MAINLAND CHINA?
A: Although it places restrictions on foreign investors, Mainland China has
been the fastest growing market in Asia. It is up approximately 40% year to
date. Our research shows strong economic data coming out of China -- favorable
export growth, a trade surplus and a recovery in domestic consumption.
Other factors are also positive. The Chinese government seems committed
to accelerating reforms and reducing the role of the state-owned sector in the
economy. As a result, it is privatizing many companies and opening them to
foreign investment. Currently, the state-owned sector is less than 40% of the
total economy. Of course, revitalizing the state-owned sector will take time.
But in the coastal regions -- where most of the wealth is centered -- China has
already done a fantastic job of encouraging an entrepreneurial spirit, which
bodes well for the rest of the country.
The normalization of China's trade relationship with the US and China's
imminent entry into the World Trade Organization should greatly benefit the
entire region. Mainland China could benefit because current trade quotas --
which
<PAGE> 40
IVY CHINA REGION FUND
limit China's textile exports to the US -- may be lifted. If China's external
trading activity increases dramatically, and we believe that it will, it should
directly benefit Hong Kong, since Hong Kong has always been a conduit between
China and the rest of the world for trade and financial activity. Taiwan is now
playing a major manufacturing role for multinational electronic companies, so
it too should benefit if it outsources its lower-end manufacturing to China and
takes advantage of China's cheaper labor market. We believe that all these
factors should be positive for equity markets in this region.
Q: ARE THERE ANY OTHER EXCITING DEVELOPMENTS OCCURRING IN THE REGION?
A: Yes. Hong Kong is now going through a structural change, expanding from its
role as service provider for mainland importers and exporters to a more
information-based economy. Throughout Hong Kong, many companies are either
implementing the latest technology or diversifying into new high-tech areas.
Hong Kong is still an international center of finance, but it is also growing
into the information services center for all of Asia. It has skilled labor, an
educated labor force and China's huge consumer market right in its backyard.
"THE COMBINATION OF HONG KONG'S STATUS AS A REGIONAL
TRADING AND FINANCIAL CENTER, TAIWAN'S FOCUS ON HIGH-TECH
MANUFACTURING AND CHINA'S LOW-COST LABOR AND CONSUMER
MARKET COULD SUSTAIN A VERY DYNAMIC REGIONAL ECONOMY."
Outside of Japan, the largest concentration of electronics companies is now in
Taiwan and Korea. Taiwan is continuing its role as Asia's high-tech
manufacturing center, and it is continually enhancing its value in this area.
In fact, Japan is now starting to outsource more of its manufacturing of
electronics products to Taiwan. While Taiwan tends to have smaller companies,
Korea is dominated more by large conglomerates, many of which are now
restructuring. Korean companies are working hard to eliminate debt and attract
foreign investors. There is also a new focus on shareholder value and
bottom-line profitability, which we believe is positive for the markets.
Q: HOW WAS IVY CHINA REGION FUND POSITIONED TO BENEFIT FROM THESE TRENDS?
A: As we mentioned, this region, particularly Taiwan, has many world-class
electronics companies. In our view, the short-term political uncertainty in
Taiwan made the prices of these stocks -- which are already trading at low
valuations compared with their global peers -- even more attractive, so we
increased the Fund's holdings in this sector. We have also been restructuring
the Fund's Hong Kong holdings, divesting financial stocks that are very
sensitive to interest rates. Because the interest rate outlook in the US is
still uncertain, and Hong Kong's market is so closely tied to US interest
rates, we're trying to limit the Fund's exposure to these stocks in favor of
ones with less interest rate sensitivity.
We also took advantage of lower share prices after the global technology
sell-off to add stocks to the Fund that we believe offer good value, such as
China Mobile and Korea's SK Telecom.
Q: IN THE PAST, THE FUND WAS MANAGED IN A VALUE STYLE. WILL THAT CHANGE?
A: Yes. We're now taking a more flexible approach, blending growth and value to
take advantage of more investment opportunities. This strategy allows us to
target the more growth-oriented technology and telecommunications stocks.
That's important, because in this region we see a lot of opportunity coming
from these sectors.
Q: WHAT IS YOUR LONG-TERM OUTLOOK FOR THE CHINA REGION MARKETS?
A: We think the stellar growth in the China region will continue to offer very
good investment opportunities. The combination of Hong Kong's status as a
regional trading and financial center, Taiwan's focus on manufacturing
high-tech products and China's low-cost labor and consumer market could sustain
a very dynamic regional economy. Although we expect bumps in the road due to
political events and the region's sensitivity to external factors (such as US
interest rates), we are very positive on the China region market and its strong
economic recovery.
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
This report is intended to be presented as a complete and integrated document.
This report and any excerpt of this report may not be copied or reprinted
without first obtaining the written permission of Ivy Funds.
2
<PAGE> 41
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES -- 95.8% SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
CHINA -- 12.9%
China Unicom Limited(a).............. 366,000 $ 777,072
Nanjing Panda Electronics Co.,
Ltd.(a)............................ 1,222,000 438,946
Qingling Motors Company -- H
Shares............................. 3,614,000 417,266
Shanghai Worldbest Co., Ltd.......... 1,246,800 381,521
Shenzhen Konka Electronics Group
Ltd. -- Class B.................... 312,000 321,405
-----------
2,336,210
-----------
HONG KONG -- 61.9%
Asia Satellite Telecommunications
Holdings Ltd....................... 4,000 137,000
Asia Satellite Telecommunications
Holdings Ltd. ADR.................. 100,000 341,884
Automated Systems Holdings Ltd....... 560,000 287,362
Cathay Pacific Airways............... 283,000 524,610
Cheung Kong Holdings Ltd............. 100,000 1,106,474
China Southern Airlines Company
Limited............................ 1,458,000 347,899
China Telecom (Hong Kong)
Limited(a)......................... 110,000 970,169
Citic Pacific Ltd.................... 150,000 785,115
Cosco Pacific Limited................ 326,000 257,202
Dah Sing Financial Group............. 112,000 451,159
Guangdong Kelon Electrical Holdings
Co. Ltd. -- H. Shares.............. 523,000 283,472
Hang Seng Bank....................... 20,900 198,408
Hong Kong & China Gas Company Ltd.... 188,179 211,233
HSBC Holdings plc.................... 75,600 863,165
Hutchison Whampoa Limited............ 78,000 980,625
Li & Fung Ltd........................ 199,600 998,636
Orient Overseas International Ltd.... 353,000 177,745
Sun Hung Kai Properties Ltd.......... 64,800 465,527
Swire Pacific Ltd.................... 65,500 383,167
VTech Holdings Limited(a)............ 108,000 408,722
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
Wharf Holdings Ltd................... 278,000 $ 497,509
Wing Hang Bank Limited............... 205,000 510,197
-----------
11,187,280
-----------
SOUTH KOREA -- 13.5%
Hyundai Motor Company Ltd............ 14,181 181,875
Pohang Iron & Steel Company Ltd...... 2,000 176,475
Samsung Electronics.................. 2,564 848,544
Shinhan Bank......................... 26,840 252,756
SK Telecom Co., Ltd.................. 2,981 975,853
-----------
2,435,503
-----------
TAIWAN -- 7.5%
Compal Electronics Inc............... 172,998 424,084
Hon Hai Precision Industry Co.,
Ltd................................ 49,000 442,287
Taiwan Semiconductor Manufacturing
Company............................ 104,064 493,306
-----------
1,359,677
-----------
TOTAL INVESTMENTS -- 95.8%
(Cost -- $13,207,493)(b)........... 17,318,670
OTHER ASSETS, LESS
LIABILITIES -- 4.2%................ 749,047
-----------
NET ASSETS -- 100%................... $18,067,717
===========
ADR -- American Depository Receipt
(a) Non-income producing security
(b) Cost is approximately the same for Federal
income tax purposes.
OTHER INFORMATION:
At June 30, 2000, net unrealized appreciation based on cost
for financial statement and Federal income tax purposes is as
follows:
Gross unrealized appreciation............... $ 4,809,744
Gross unrealized depreciation............... (698,567)
-----------
Net unrealized appreciation............. $ 4,111,177
===========
Purchases and sales of securities other than short-term
obligations aggregated $7,566,185 and $8,891,822,
respectively, for the period ended June 30, 2000.
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 42
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY CHINA REGION FUND
--------------------------------------------------------------------------------
4
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $13,207,493)...... $17,318,670
Cash........................................................ 645,819
Receivables
Investments sold.......................................... 35,305
Fund shares sold.......................................... 7,148
Dividends and interest.................................... 84,208
Manager for expense reimbursement......................... 22,352
Other assets................................................ 10,129
-----------
Total assets............................................ 18,123,631
-----------
LIABILITIES
Payables
Management fee............................................ 15,157
12b-1 service and distribution fees....................... 1,889
Other payables to related parties......................... 11,132
Accrued expenses............................................ 27,736
-----------
Total liabilities....................................... 55,914
-----------
NET ASSETS.................................................. $18,067,717
===========
CLASS A
Net asset value and redemption price per share
($10,841,779/1,175,768 shares outstanding)................ $ 9.22
===========
Maximum offering price per share ($9.22 X 100/94.25)*....... $ 9.78
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($6,424,669/707,616 shares outstanding)............. $ 9.08
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($737,041/80,950 shares outstanding)................ $ 9.10
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($64,228/7,039 shares outstanding).................. $ 9.12
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $22,036,841
Accumulated net investment loss on investments and foreign
currency transactions................................... (8,217,281)
Undistributed net investment income....................... 136,990
Net unrealized appreciation on investments and foreign
currency transactions................................... 4,111,167
-----------
NET ASSETS.................................................. $18,067,717
===========
</TABLE>
<TABLE>
<S> <C>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 43
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $9,396 of foreign taxes withheld........ $ 348,443
Interest.................................................. 24,720
-----------
373,163
-----------
EXPENSES
Management fee............................................ $94,662
Transfer agent............................................ 45,935
Administrative services fee............................... 9,466
Custodian fees............................................ 33,451
Blue Sky fees............................................. 15,613
Auditing and accounting fees.............................. 13,084
Shareholder reports....................................... 9,805
Fund accounting........................................... 18,556
Trustees' fees............................................ 2,976
12b-1 service and distribution fees....................... 51,594
Legal..................................................... 13,881
Other..................................................... 1,862
-----------
310,885
Expenses reimbursed by Manager............................ (74,712)
-----------
Net expenses.......................................... 236,173
-----------
NET INVESTMENT INCOME....................................... 136,990
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (1,432,326)
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 1,539,889
-----------
Net gain on investments............................... 107,563
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 244,553
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 44
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY CHINA REGION FUND
--------------------------------------------------------------------------------
6
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------ ------------
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 136,990 $ 135,562
Net realized (loss) gain on investments and foreign
currency transactions................................... (1,432,326) 924,189
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 1,539,889 6,328,151
----------- -----------
Net increase resulting from operations................ 244,553 7,387,902
----------- -----------
Class A distributions
Dividends from net investment income...................... -- (116,226)
Distributions from capital gain........................... -- (9,904)
----------- -----------
Total distributions to Class A shareholders........... -- (126,130)
----------- -----------
Class B distributions
Dividends from net investment income...................... -- (17,335)
Distributions from capital gain........................... -- (6,000)
----------- -----------
Total distributions to Class B shareholders........... -- (23,335)
----------- -----------
Class C distributions
Dividends from net investment income...................... -- (944)
Distributions from capital gain........................... -- (623)
----------- -----------
Total distributions to Class C shareholders........... -- (1,567)
----------- -----------
Advisor Class distributions
Dividends from net investment income...................... -- (4,321)
Distributions from capital gain........................... -- (236)
----------- -----------
Total distributions to Advisor Class shareholders..... -- (4,557)
----------- -----------
Fund share transactions (Note 5)
Class A................................................... (2,126,567) (759,913)
Class B................................................... (1,093,553) (1,087,549)
Class C................................................... (44,666) (217,633)
Advisor Class............................................. (247,663) 313,989
----------- -----------
Net decrease resulting from Fund share transactions... (3,512,449) (1,751,106)
----------- -----------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (3,267,896) 5,481,207
NET ASSETS
Beginning of period....................................... 21,335,613 15,854,406
----------- -----------
END OF PERIOD............................................. $18,067,717 $21,335,613
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 136,990 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 45
7
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
for the six
months ended
June 30,
CLASS A (unaudited) for the year ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
SELECTED PER SHARE DATA ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 9.15 $ 6.30 $ 8.04 $ 10.30 $ 8.58 $ 8.61
---------------------------------------------------------------------------
Income (loss) from investment operations
Net investment income(a).......................... .04 .08 .13 .02(f) .03 .14
Net gain (loss) on securities (both realized and
unrealized)..................................... .03 2.86 (1.78) (2.28)(f) 1.74 (.01)
---------------------------------------------------------------------------
Total from investment operations.................. .07 2.94 (1.65) (2.26) 1.77 .13
---------------------------------------------------------------------------
Less distributions
Dividends
From net investment income...................... -- .08 .09 -- .03 .14
In excess of net investment income.............. -- -- -- -- .02 --
Distributions
From capital gain............................... -- .01 -- -- -- --
In excess of capital gain....................... -- -- -- -- -- .02
---------------------------------------------------------------------------
Total distributions............................. -- .09 .09 -- .05 .16
---------------------------------------------------------------------------
Net asset value, end of period...................... $ 9.22 $ 9.15 $ 6.30 $ 8.04 $ 10.30 $ 8.58
===========================================================================
Total return(%)..................................... .77(b) 46.72(c) (20.56)(c) (21.94)(c) 20.50(c) 1.59(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............ $10,842 $12,738 $ 9,061 $12,020 $15,290 $12,855
Ratio of expenses to average net assets(d)
With expense reimbursement(%)..................... 2.19(e) 2.19 2.30 2.44 2.20 2.20
Without expense reimbursement(%).................. 2.98(e) 2.84 2.86 2.51 2.48 2.73
Ratio of net investment income to average net
assets(%)(a)...................................... 1.75(e) 1.01 1.60 .28 .32 1.61
Portfolio turnover rate(%).......................... 42 23 56 20 22 25
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
for the six
months ended
June 30,
CLASS B (unaudited) for the year ended December 31,
-----------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
SELECTED PER SHARE DATA -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 9.04 $ 6.24 $ 7.96 $10.28 $ 8.58 $ 8.61
-----------------------------------------------------------------------
Income (loss) from investment operations
Net investment income (loss)(a)................... .02 .02 .05 (.04)(f) (.04) .08
Net gain (loss) on securities (both realized and
unrealized)..................................... .02 2.81 (1.73) (2.28)(f) 1.74 (.02)
-----------------------------------------------------------------------
Total from investment operations.................. .04 2.83 (1.68) (2.32) 1.70 .06
-----------------------------------------------------------------------
Less distributions
Dividends
From net investment income...................... -- .02 .04 -- -- .08
In excess of net investment income.............. -- -- -- -- -- .01
Distributions from capital gain................... -- .01 -- -- -- --
-----------------------------------------------------------------------
Total distributions............................. -- .03 .04 -- -- .09
-----------------------------------------------------------------------
Net asset value, end of period...................... $ 9.08 $ 9.04 $ 6.24 $ 7.96 $10.28 $ 8.58
=======================================================================
Total return(%)..................................... .44(b) 45.33(c) (21.04)(c) (22.57)(c) 19.67(c) .83(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............ $ 6,425 $7,508 $6,080 $7,893 $8,995 $6,905
Ratio of expenses to average net assets(d)
With expense reimbursement(%)..................... 2.96(e) 2.97 3.08 3.17 2.95 2.95
Without expense reimbursement(%).................. 3.75(e) 3.62 3.64 3.24 3.23 3.48
Ratio of net investment income (loss) to average net
assets(%)(a)...................................... .99(e) .24 .82 (.45) (.43) .86
Portfolio turnover rate(%).......................... 42 23 56 20 22 25
</TABLE>
The accompanying notes are an integral part of the financial statement.
<PAGE> 46
8
[IVY LEAF LOGO]
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
for the six for the period
months ended April 30, 1996
June 30, for the year ended (commencement)
CLASS C (unaudited) December 31, to December 31,
---------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
SELECTED PER SHARE DATA ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 9.07 $ 6.25 $ 7.94 $ 10.24 $ 9.44
---------------------------------------------------------------------------
Income (loss) from investment operations
Net investment income (loss)(a)................... .01 .02 .08 (.03)(f) --
Net gain (loss) on securities (both realized and
unrealized)..................................... .02 2.82 (1.75) (2.27)(f) .89
---------------------------------------------------------------------------
Total from investment operations.................. .03 2.84 (1.67) (2.30) .89
---------------------------------------------------------------------------
Less distributions
Dividends
From net investment income...................... -- .01 .02 -- --
In excess of net investment income.............. -- -- -- -- .09
Distributions from capital gain................... -- .01 -- -- --
---------------------------------------------------------------------------
Total distributions............................. -- .02 .02 -- .09
---------------------------------------------------------------------------
Net asset value, end of period...................... $ 9.10 $ 9.07 $ 6.25 $ 7.94 $10.24
===========================================================================
Total return(%)..................................... .33(b) 45.41(c) (21.02)(c) (22.46)(c) 9.39(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............ $ 737 $ 776 $ 704 $ 1,129 $ 449
Ratio of expenses to average net assets(d)
With expense reimbursement(%)..................... 3.16(e) 3.03 2.98 3.05 2.71(e)
Without expense reimbursement(%).................. 3.95(e) 3.68 3.54 3.12 2.99(e)
Ratio of net investment income (loss) to average net
assets(%)(a)...................................... .79(e) .18 .92 (.33) (.19)(e)
Portfolio turnover rate(%).......................... 42 23 56 20 22
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
for the six for the period
months ended for the year February 10,1998
June 30, ended (commencement)
ADVISOR CLASS (unaudited) December 31, to December 31,
--------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA 2000 1999 1998
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 9.03 $ 6.27 $ 7.89
-------------------------------------------------------
Income (loss) from investment operations
Net investment income(a)........................... .06 .04 .08
Net gain (loss) on securities (both realized and
unrealized)...................................... .03 2.86 (1.62)
-------------------------------------------------------
Total from investment operations................... .09 2.90 (1.54)
-------------------------------------------------------
Less distributions
Dividends from net investment income............... -- .13 .08
Distributions from capital gain.................... -- .01 --
-------------------------------------------------------
Total distributions.............................. -- .14 .08
-------------------------------------------------------
Net asset value, end of period....................... $ 9.12 $ 9.03 $ 6.27
=======================================================
Total return(%)...................................... 1.00(b) 46.29(c) (19.56)(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............. $ 64 $ 313 $ 10
Ratio of expenses to average net assets(d)
With expense reimbursement(%)...................... 1.72(e) 1.79 2.92(e)
Without expense reimbursement(%)................... 2.51(e) 2.44 3.48(e)
Ratio of net investment income to average net
assets(%)(a)....................................... 2.22(e) 1.42 .98(e)
Portfolio turnover rate(%)........................... 42 23 56
</TABLE>
(a) Net investment income (loss) is net of expenses reimbursed by Manager.
(b) Total return represents aggregate total return and does not reflect a sales
charge.
(c) Total return does not reflect a sales charge.
(d) From 1995 to 1998, total expenses include fees paid indirectly, if any,
through an offset arrangement.
(e) Annualized
(f) Based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
<PAGE> 47
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Ivy China Region Fund (the "Fund"), is a diversified series of shares of Ivy
Fund. The shares of beneficial interest are assigned no par value and an
unlimited number of shares of Class A, Class B, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. Preparation of the
financial statements includes the use of management estimates. Actual results
could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock exchange, or
The Nasdaq Stock Market Inc. ("Nasdaq") system, are valued at the last quoted
sale price reported as of the close of regular trading on the exchange on which
the security is traded most extensively. If there were no sales on the exchange
on which the security is traded most extensively and the security is traded on
more than one exchange, or on one or more exchanges in the over-the-counter
market, the exchange reflecting the last quoted sale will be used. Otherwise,
the security is valued at the calculated mean between the last bid and asked
price on the exchange on which the security is traded most extensively.
Securities not traded on an exchange or Nasdaq, but traded in another over-
the-counter market are valued at the average between the current bid and asked
price in such markets. Short-term obligations and commercial paper are valued at
amortized cost, which approximates market. Debt securities (other than
short-term obligations and commercial paper) are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees
(the "Board"), which determines valuations based upon market transactions for
normal, institutional-size trading units of such securities, or on the basis of
dealer quotes. All other securities are valued at their fair value as determined
in good faith by the Valuation Committee of the Board; as of June 30, 2000,
there were no Board valued securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Corporate actions,
including dividends, are recorded on the ex-dividend date. If such information
is not available on the ex-dividend date, corporate actions are recorded as soon
as reliable information is available from the Fund's sources. Realized gains and
losses from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable
to regulated investment companies under the Internal Revenue Code of 1986, as
amended (the "Code"), and distribute all of its taxable income to its
shareholders. Therefore, no provision has been recorded for Federal income or
excise taxes.
The Fund has a net tax-basis capital loss carryover of approximately $6,282,000
as of December 31, 1999, which may be applied against any realized net taxable
capital gain of each succeeding fiscal year until fully utilized or until the
expiration date, whichever occurs first. The carryover expires $264,000 in 2002,
$203,000 in 2003, $1,033,000 in 2004, $416,000 in 2005, $4,238,000 in 2006 and
$128,000 in 2007.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
capital gain, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable, are
translated at the closing daily rate of exchange; and (ii) purchases and sales
of investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Code Section 988 provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
RECLASSIFICATIONS -- The timing and characterization of certain income and
capital gain distributions are determined annually in accordance with Federal
tax regulations which may differ from generally accepted accounting principles.
These differences primarily relate to foreign denominated securities and certain
securities sold at a loss. As a result, Net investment income and Net realized
loss on investments and foreign currency transactions for a reporting period may
differ significantly in amount and
<PAGE> 48
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY CHINA REGION FUND
--------------------------------------------------------------------------------
10
character from distributions during such period. Accordingly, the Fund may make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. ("IMI") is the Manager and Investment Adviser of the Fund.
For its services, IMI receives a fee monthly at the annual rate of 1.00% of the
Fund's average net assets. Currently, IMI limits the Fund's total operating
expenses (excluding 12b-1 fees and certain other expenses) to an annual rate of
1.95% of the Fund's average net assets.
Mackenzie Investment Management Inc. ("MIMI"), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the six months ended June 30, 2000, the net amount of underwriting
discount retained by IMDI was $3,750.
Under Service and Distribution Plans, the Fund reimburses IMDI for service fee
payments made to brokers at an annual rate of .25% of its average net assets,
excluding Advisor Class. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C shares. IMDI may use such distribution fee
for purposes of advertising and marketing shares of the Fund. Such fees of
$13,902, $33,978 and $3,714, for Class A, Class B and Class C, respectively, are
reflected as 12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer and shareholder servicing agent for the Fund. For those services, the
Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $26,310, $16,704, $2,571 and $350, for Class A, Class B, Class C and
Advisor Class respectively, are reflected as Transfer agent in the Statement of
Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in equity securities of companies in the China
region. Therefore, the Fund is more susceptible to factors adversely affecting
securities within the China region than is an equity fund that is not
concentrated in such securities to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C, and Advisor Class were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
----------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 937,403 $ 8,377,775 2,892,229 $ 19,961,432
Issued on
reinvestment of
distributions....... -- -- 12,715 113,544
Repurchased.......... (1,154,353) (10,504,342) (2,949,520) (20,834,889)
---------- ------------ ---------- ------------
Net decrease......... (216,950) $ (2,126,567) (44,576) $ (759,913)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
----------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 27,968 $ 251,647 147,314 $ 1,099,716
Issued on
reinvestment of
distributions....... -- -- 1,988 17,556
Repurchased.......... (151,219) (1,345,200) (293,462) (2,204,821)
---------- ------------ ---------- ------------
Net decrease......... (123,251) $ (1,093,553) (144,160) $ (1,087,549)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
----------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 15,162 $ 134,650 64,217 $ 459,612
Issued on
reinvestment of
distributions....... -- -- 105 930
Repurchased.......... (19,789) (179,316) (91,400) (678,175)
---------- ------------ ---------- ------------
Net decrease......... (4,627) $ (44,666) (27,078) $ (217,633)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
----------------------------------------------------------------------------
ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 21,329 $ 189,312 123,402 $ 1,090,855
Issued on
reinvestment of
distributions....... -- -- 478 4,224
Repurchased.......... (48,939) (436,975) (90,832) (781,090)
---------- ------------ ---------- ------------
Net (decrease)/
increase............ (27,610) $ (247,663) 33,048 $ 313,989
========== ============ ========== ============
</TABLE>
<PAGE> 49
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
11
<PAGE> 50
03ICRF063000
<PAGE> 51
[IVY FUNDS LOGO]
SEMIANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
IVY MANAGEMENT, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432-6139
800.456.5111
JUNE 30, 2000
BOARD OF TRUSTEES
John S. Anderegg, Jr.
James W. Broadfoot
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Dianne Lister
Roy J. Glauber
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Edward M. Tighe
OFFICERS
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, Massachusetts
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, Massachusetts
TRANSFER AGENT
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, Florida 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432-6139
800.456.5111
www.ivyfunds.com
E-mail: [email protected]
[IVY MACKENZIE LOGO]
IVY ASIA PACIFIC FUND
MARKET PERSPECTIVE
[PHOTO] The Fund's goal: to provide long-term capital growth by investing in
securities in the Asia Pacific (non-Japan) region.
Ivy Asia Pacific Fund is managed by Ivy's International Equity team. The
following is an interview with team member and Asian equity specialist Michelle
Chan.
Q: MICHELLE, WHAT HAPPENED IN THE ASIA PACIFIC REGION IN THE FIRST HALF OF 2000?
A: As in the rest of the world, technology, media and telecommunication (TMT)
stocks performed well for most of the first quarter, but experienced a sell-off
in March. The Hong Kong market, where the Fund has 32% of its assets, has become
very correlated with the technology-heavy NASDAQ. When the stocks in that index
declined in the spring, Hong Kong TMT stocks quickly followed. After the
"high-tech fever" cooled down, however, the Hong Kong market was dominated more
by concern over continuing interest rate increases in the US. Hong Kong's
currency is pegged to the US dollar, and an interest rate increase in the US is
inevitably followed by an interest rate increase in Hong Kong.
The Taiwanese market experienced quite a bit of volatility prior to its recent
presidential elections. Political issues in Taiwan during the presidential
campaign and controversy on the mainland led to substantial nervousness and a
sell-off in the Taiwanese market. The new government, however, seems to be
conciliatory on issues that affect Mainland China, which we believe is a good
sign.
Malaysia, which was dropped from the Morgan Stanley Capital International Far
East ex-Japan Index in September of 1998, was reincluded this past May. As a
result, investor sentiment toward Malaysia improved, and the market rallied.
This was good news for the Fund, since it has 7.4% of its assets in Malaysia.
Q: WHAT RECENT DEVELOPMENTS DO YOU FIND ENCOURAGING?
A: In China, the government seems committed to accelerating reforms and reducing
the role of the state-owned sector in the economy. As a result, it is
privatizing many companies and opening them to foreign investment. Currently,
the state-owned sector is less than 40% of the total economy. Of course,
completely revitalizing the state-owned enterprise sector will take time. But in
the coastal regions -- where most of the wealth is centered -- China has already
done a fantastic job of encouraging an entrepreneurial spirit, which bodes well
for the rest of the country.
The normalization of China's trade relationship with the US and China's imminent
entry into the World Trade Organization should greatly benefit the surrounding
region. Mainland China could benefit because current trade quotas -- which limit
China's textile exports to the US -- may be lifted. If China's external trading
activity increases dramatically, and we believe that it will, it should directly
<PAGE> 52
benefit Hong Kong, since Hong Kong has always been a conduit between China and
the rest of the world for trade and financial activity. Taiwan is now playing a
major manufacturing role for multinational electronic companies, so it too
should benefit if it outsources its lower-end manufacturing to China and takes
advantage of China's cheaper labor market. We believe that all these factors
should be positive for equity markets in this region.
Q: WHAT OTHER CHANGES ARE TAKING PLACE IN HONG KONG, TAIWAN AND KOREA?
A: Hong Kong is now going through a structural change, expanding from its role
as service provider for mainland importers and exporters to a more
information-based economy. Throughout Hong Kong, many companies are either
implementing the latest technology or diversifying into new high-tech areas.
Hong Kong is still an international center of finance, but it is also growing
into the information services center for all of Asia. It has skilled labor, an
educated labor force and China's huge consumer market right in its backyard.
Outside of Japan, the largest concentration of electronics companies is now in
Taiwan and Korea. Taiwan is continuing its role as Asia's high-tech
manufacturing center, and it is continually enhancing its value in this area. In
fact, Japan is now starting to outsource more of its manufacturing of
electronics products to Taiwan.
While Taiwan tends to have smaller companies, Korea is dominated more by large
conglomerates, many of which are now restructuring. Korean companies are working
hard to eliminate debt and attract foreign investors. There is also a new focus
on shareholder value and bottom-line profitability, which we believe is positive
for the markets. In general, Korea's economy looks strong, and the country is
developing world-class industries.
"WE BELIEVE THAT THE ASIA PACIFIC REGION WILL CONTINUE
TO BE AMONG THE WORLD'S FASTEST-GROWING MARKETS."
Q: HOW WAS IVY ASIA PACIFIC FUND POSITIONED TO BENEFIT FROM THESE TRENDS?
A: In our view, the short-term political uncertainty in Taiwan made the prices
of electronics manufacturing stocks -- which are already trading at low
valuations compared with their global peers -- even more attractive, so we
increased the Fund's holdings in this sector. We also took advantage of
attractive valuations in Korea to add to the Fund's holdings in high-quality
stocks in companies such as Samsung Electronics, Korea Telecom and SK Telecom.
In addition, we have been restructuring the Fund's Hong Kong holdings, divesting
financial stocks that are very sensitive to interest rates. Because the interest
rate outlook in the US is still uncertain, and Hong Kong's market is so closely
tied to US interest rates, we're trying to limit the Fund's exposure to these
stocks in favor of ones with less interest rate sensitivity.
Q: IN THE PAST, THE FUND WAS MANAGED IN A VALUE STYLE. WILL THAT CHANGE?
A: Yes. We're now taking a more flexible approach, blending growth and value to
take advantage of more investment opportunities. This strategy allows us to
target the more growth-oriented technology and telecommunications stocks. That's
important, because in this region we see a lot of opportunity coming from these
sectors.
Q: WHAT IS YOUR LONG-TERM OUTLOOK FOR THE ASIA PACIFIC REGION?
A: We believe that the Asia Pacific region will continue to be among the world's
fastest-growing markets. Asia in general has a high rate of domestic demand,
modern manufacturing capabilities, low-cost labor and pro-business policies. In
Northern Asia, the combination of Hong Kong's status as a regional trading and
financial center, Taiwan's focus on manufacturing high-tech products and China's
low-cost labor and consumer market could sustain a very dynamic regional
economy. Although we expect bumps in the road due to political events and the
region's sensitivity to external factors (such as US interest rates), we are
very positive on the Asia Pacific market and its strong economic recovery.
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
This report is intended to be presented as a complete and integrated document.
This report and any excerpt of this report may not be copied or reprinted
without first obtaining the written permission of Ivy Funds.
2
<PAGE> 53
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES -- 97.7% SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
AUSTRALIA -- 1.6%
National Australia Bank Ltd............. 4,099 $ 68,660
Westpac Banking Corp. Ltd............... 9,000 65,116
----------
133,776
----------
CHINA -- 7.1%
China Unicom Limited(a)................. 176,000 373,674
Nanjing Panda Electronics Co.,
Ltd.(a)............................... 362,000 130,032
Qingling Motors Company -- H Shares..... 758,000 87,517
----------
591,223
----------
HONG KONG -- 31.5%
Asia Satellite Telecommunications
Holdings Ltd. ADR..................... 56,500 193,165
Automated Systems Holdings Ltd.......... 192,000 98,524
Cathay Pacific Airways.................. 121,000 224,303
Cheung Kong Holdings Ltd................ 26,000 287,683
China Telecom (Hong Kong) Limited(a).... 48,000 423,347
Citic Pacific Ltd....................... 48,000 251,237
Dah Sing Financial Group................ 52,000 209,467
Guangdong Kelon Electrical Holdings Co.
Ltd. -- H Shares...................... 55,000 29,811
HSBC Holdings plc....................... 16,800 191,814
Hutchison Whampoa Limited............... 12,000 150,865
Orient Overseas International Ltd....... 93,000 46,828
Sun Hung Kai Properties Ltd............. 12,000 86,209
Swire Pacific Ltd....................... 28,000 163,797
Wharf Holdings Ltd...................... 42,810 76,613
Wing Hang Bank Limited.................. 74,000 184,169
----------
2,617,832
----------
MALAYSIA -- 7.4%
Berjaya Sports Toto Berhad.............. 61,000 99,528
Genting Berhad.......................... 17,000 62,633
Malayan Banking Berhad.................. 34,400 139,413
Public Bank Berhad...................... 40,000 36,843
Public Bank Berhad -- Foreign
Registered............................ 50,000 50,001
Sime Darby Berhad....................... 102,000 130,992
Sime UEP Properties Berhad.............. 68,000 91,265
----------
610,675
----------
NEW ZEALAND -- 3.1%
Fletcher Challenge Energy............... 21,000 68,707
Telecom Corporation of New Zealand
Limited............................... 22,253 78,044
Tourism Holdings Limited................ 98,591 113,710
----------
260,461
----------
PHILIPPINES -- 0.6%
Benpres Holdings Corporation Sponsored
GDR(a)................................ 8,000 15,500
Manila Electric Company -- B Shares..... 19,200 28,204
Universal Robina Corporation............ 67,500 8,276
----------
51,980
----------
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
SINGAPORE -- 9.8%
DBS Group Holdings Limited.............. 9,943 $ 127,668
DBS Land Ltd............................ 73,000 94,576
Overseas Union Bank Ltd................. 52,148 202,080
Singapore Airlines Limited.............. 17,000 168,134
Singapore Press Holdings Ltd............ 14,000 218,626
----------
811,084
----------
SOUTH KOREA -- 19.0%
Hyundai Motor Company Ltd............... 5,983 76,733
Korea Electric Power Corp............... 2,000 62,063
Korea Telecom Corporation............... 2,500 220,182
Pohang Iron & Steel Company Ltd......... 1,000 88,238
Samsung Electronics Co. Sponsored GDR... 2,970 581,377
Samsung Fire & Marine Insurance......... 1,749 48,627
Shinhan Bank............................ 24,400 229,778
SK Telecom Co., Ltd..................... 814 266,469
----------
1,573,467
----------
TAIWAN -- 16.9%
Asustek Computer Inc.................... 26,520 218,711
Compal Electronics Inc.................. 145,900 357,656
Hon Hai Precision Industry Co., Ltd..... 40,000 361,051
Taiwan Semiconductor Manufacturing
Company............................... 99,000 469,300
----------
1,406,718
----------
THAILAND -- 0.7%
Advanced Info Service Public Company
Limited -- Foreign Registered(a)...... 4,600 57,231
----------
TOTAL INVESTMENTS -- 97.7%
(Cost -- $6,625,127)(b)............... 8,114,447
OTHER ASSETS, LESS LIABILITIES -- 2.3% 188,027
----------
NET ASSETS -- 100% $8,302,474
==========
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
(a) Non-income producing security
(b) Cost is approximately the same for Federal
income tax purposes.
OTHER INFORMATION:
At June 30, 2000, net unrealized appreciation based on cost
for financial statement and Federal income tax purposes is as
follows:
Gross unrealized appreciation................ $1,869,210
Gross unrealized depreciation................ (379,890)
----------
Net unrealized appreciation.............. $1,489,320
==========
Purchases and sales of securities other than short-term
obligations aggregated $5,293,294 and $3,758,977,
respectively, for the period ended June 30, 2000.
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 54
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
4
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $6,625,127)....... $ 8,114,447
Cash........................................................ 173,677
Receivables
Investments sold.......................................... 6,469
Fund shares sold.......................................... 5,931
Dividends and interest.................................... 18,107
Manager for expense reimbursement......................... 23,876
Deferred organization expenses.............................. 14,106
Other assets................................................ 14,125
-----------
Total assets............................................ 8,370,738
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 26,468
Management fee............................................ 6,946
12b-1 service and distribution fees....................... 1,194
Other payables to related parties......................... 4,374
Accrued expenses............................................ 29,282
-----------
Total liabilities....................................... 68,264
-----------
NET ASSETS.................................................. $ 8,302,474
===========
CLASS A
Net asset value and redemption price per share
($2,749,276/384,368 shares outstanding)................... $ 7.15
===========
Maximum offering price per share ($7.15 X 100/94.25)*....... $ 7.59
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($3,250,875/461,235 shares outstanding)............. $ 7.05
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($2,300,597/324,896 shares outstanding)............. $ 7.08
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($1,726/244 shares outstanding)..................... $ 7.07
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 8,431,437
Accumulated net realized loss on investments and foreign
currency transactions................................... (1,611,496)
Accumulated net investment loss........................... (6,836)
Net unrealized appreciation on investments and foreign
currency transactions................................... 1,489,369
-----------
NET ASSETS.................................................. $ 8,302,474
===========
</TABLE>
<TABLE>
<S> <C>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 55
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 117,250
Interest.................................................. 15,152
-----------
132,402
-----------
EXPENSES
Management fee............................................ $43,657
Transfer agent............................................ 13,036
Administrative services fee............................... 4,366
Custodian fees............................................ 37,459
Blue Sky fees............................................. 15,668
Auditing and accounting fees.............................. 11,081
Shareholder reports....................................... 5,384
Amortization of organization expenses..................... 4,899
Fund accounting........................................... 10,243
Trustees' fees............................................ 2,732
12b-1 service and distribution fees....................... 33,390
Legal..................................................... 13,847
Other..................................................... 1,239
-----------
197,001
Expenses reimbursed by Manager............................ (78,485)
-----------
Net expenses.......................................... 118,516
-----------
NET INVESTMENT INCOME....................................... 13,886
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 211,218
Net change in unrealized appreciation on investments and
foreign currency transactions........................... (1,249,445)
-----------
Net loss on investment transactions................... (1,038,227)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(1,024,341)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 56
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
6
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------ ------------
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income (loss).............................. $ 13,886 $ (17,446)
Net realized gain on investments and foreign currency
transactions............................................ 211,218 311,404
Net change in unrealized appreciation on investments and
foreign currency transactions........................... (1,249,445) 2,429,520
----------- ----------
Net (decrease) increase resulting from operations..... (1,024,341) 2,723,478
----------- ----------
Class A distributions
Dividends from net investment income...................... -- (4,345)
Distributions from capital gain........................... -- (14,864)
----------- ----------
Total distributions to Class A shareholders........... -- (19,209)
----------- ----------
Class B distributions
Distributions from capital gain........................... -- (15,357)
----------- ----------
Total distributions to Class B shareholders........... -- (15,357)
----------- ----------
Class C distributions
Distributions from capital gain........................... -- (12,237)
----------- ----------
Total distributions to Class C shareholders........... -- (12,237)
----------- ----------
Advisor Class distributions
Dividends from net investment income...................... -- (791)
Distributions from capital gain........................... -- (934)
----------- ----------
Total distributions to Advisor Class shareholders..... -- (1,725)
----------- ----------
Fund share transactions (Note 5)
Class A................................................... 1,015,893 (107,980)
Class B................................................... (97,556) 529,602
Class C................................................... (420,013) 281,207
Advisor Class............................................. (116,624) 122,006
----------- ----------
Net increase resulting from Fund share transactions... 381,700 824,835
----------- ----------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (642,641) 3,499,785
NET ASSETS
Beginning of period....................................... 8,945,115 5,445,330
----------- ----------
END OF PERIOD............................................. $ 8,302,474 $8,945,115
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 57
7
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
for the six
months ended
June 30,
CLASS A (unaudited) for the year ended December 31,
--------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997
SELECTED PER SHARE DATA ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 7.99 $ 5.56 $ 6.01 $ 10.00
------------------------------------------------------
(Loss) income from investment operations
Net investment income(a).................................. .03 .02 .03 .02
Net (loss) gain on securities (both realized and
unrealized)............................................. (.87) 2.49 (.44) (3.98)
------------------------------------------------------
Total from investment operations.......................... (.84) 2.51 (.41) (3.96)
------------------------------------------------------
Less distributions
Dividends
From net investment income.............................. -- .02 -- .01
In excess of net investment income...................... -- -- .03 .02
Distributions from capital gain........................... -- .06 .01 --
------------------------------------------------------
Total distributions..................................... -- .08 .04 .03
------------------------------------------------------
Net asset value, end of period.............................. $ 7.15 $ 7.99 $ 5.56 $ 6.01
======================================================
Total return(%)............................................. (10.51)(b) 45.10(c) (6.86)(c) (39.58)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 2,749 $2,015 $ 1,393 $ 692
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 2.16(e) 2.39 2.77 2.11
Without expense reimbursement(%).......................... 3.96(e) 4.03 6.15 10.17
Ratio of net investment income to average net
assets(%)(a).............................................. .88(e) .31 .53 .63
Portfolio turnover rate(%).................................. 47 24 86 1
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
for the six
months ended
June 30,
CLASS B (unaudited) for the year ended December 31,
--------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997
SELECTED PER SHARE DATA ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 7.91 $ 5.53 $ 5.99 $ 10.00
------------------------------------------------------
(Loss) income from investment operations
Net investment loss(a).................................... -- (.03) (.01) --
Net (loss) gain on securities (both realized and
unrealized)............................................. (.86) 2.44 (.44) (4.00)
------------------------------------------------------
Total from investment operations.......................... (.86) 2.41 (.45) (4.00)
------------------------------------------------------
Less distributions
Dividends in excess of net investment income.............. -- -- .01 .01
Distributions from capital gain........................... -- .03 -- --
------------------------------------------------------
Total distributions..................................... -- .03 .01 .01
------------------------------------------------------
Net asset value, end of period.............................. $ 7.05 $ 7.91 $ 5.53 $ 5.99
======================================================
Total return(%)............................................. (10.87)(b) 43.64(c) (7.48)(c) (39.96)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 3,251 $3,763 $ 2,197 $ 929
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 3.00(e) 3.17 3.65 2.86
Without expense reimbursement(%).......................... 4.80(e) 4.81 7.03 10.92
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .03(e) (.46) (.35) (.12)
Portfolio turnover rate(%).................................. 47 24 86 1
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 58
8
[IVY LEAF LOGO]
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
for the six
months ended
June 30,
CLASS C (unaudited) for the year ended December 31,
--------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997
SELECTED PER SHARE DATA ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 7.94 $ 5.54 $ 5.99 $ 10.00
------------------------------------------------------
(Loss) income from investment operations
Net investment loss(a).................................... -- (.03) (.01) --
Net (loss) gain on securities (both realized and
unrealized)............................................. (.86) 2.46 (.43) (3.99)
------------------------------------------------------
Total from investment operations.......................... (.86) 2.43 (.44) (3.99)
------------------------------------------------------
Less distributions
Dividends in excess of net investment income.............. -- -- .01 .02
Distributions from capital gain........................... -- .03 -- --
------------------------------------------------------
Total distributions..................................... -- .03 .01 .02
------------------------------------------------------
Net asset value, end of period.............................. $ 7.08 $ 7.94 $ 5.54 $ 5.99
======================================================
Total return(%)............................................. (10.83)(b) 43.92(c) (7.37)(c) (39.94)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $2,301 $3,031 $ 1,855 $ 764
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 2.93(e) 3.09 3.54 2.74
Without expense reimbursement(%).......................... 4.73(e) 4.73 6.92 10.80
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .10(e) (.38) (.24) --
Portfolio turnover rate(%).................................. 47 24 86 1
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
for the six for the period
months ended July 1, 1999
June 30, (commencement)
ADVISOR CLASS (unaudited) to December 31,
--------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA 2000 1999
------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 7.97 $ 7.76
------------------------------------
(Loss) income from investment operations
Net investment income(a).................................. .05 .02
Net (loss) gain on securities (both realized and
unrealized)............................................. (.95) .30
------------------------------------
Total from investment operations.......................... (.90) .32
------------------------------------
Less distributions
Dividends in excess of net investment income.............. -- .05
Distributions from capital gain........................... -- .06
------------------------------------
Total distributions..................................... -- .11
------------------------------------
Net asset value, end of period.............................. $ 7.07 $ 7.97
====================================
Total return(%)(b).......................................... (11.29) 4.14
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 2 $ 136
Ratio of expenses to average net assets(d)
With expense reimbursement(%)(e).......................... 1.80 2.02
Without expense reimbursement(%)(e)....................... 3.60 3.66
Ratio of net investment income to average net
assets(%)(a)(e)........................................... 1.24 .69
Portfolio turnover rate(%).................................. 47 24
</TABLE>
(a) Net investment income (loss) is net of expenses reimbursed by Manager.
(b) Total return represents aggregate total return and does not reflect a sales
charge.
(c) Total return does not reflect a sales charge.
(d) From 1997 through April 1999, total expenses include fees paid indirectly,
if any, through an offset arrangement.
(e) Annualized
The accompanying notes are an integral part of the financial statements.
<PAGE> 59
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Ivy Asia Pacific Fund (the "Fund"), is a diversified series of shares of Ivy
Fund. The shares of beneficial interest are assigned no par value and an
unlimited number of shares of Class A, Class B, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. Preparation of the
financial statements includes the use of management estimates. Actual results
could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock exchange, or
The Nasdaq Stock Market Inc. ("Nasdaq") system, are valued at the last quoted
sale price reported as of the close of regular trading on the exchange on which
the security is traded most extensively. If there were no sales on the exchange
on which the security is traded most extensively and the security is traded on
more than one exchange, or on one or more exchanges in the over-the-counter
market, the exchange reflecting the last quoted sale will be used. Otherwise,
the security is valued at the calculated mean between the last bid and asked
price on the exchange on which the security is traded most extensively.
Securities not traded on an exchange or Nasdaq, but traded in another over-
the-counter market are valued at the average between the current bid and asked
price in such markets. Short-term obligations and commercial paper are valued at
amortized cost, which approximates market. Debt securities (other than
short-term obligations and commercial paper) are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees
(the "Board"), which determines valuations based upon market transactions for
normal, institutional-size trading units of such securities, or on the basis of
dealer quotes. All other securities are valued at their fair value as determined
in good faith by the Valuation Committee of the Board; as of June 30, 2000,
there were no Board valued securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Corporate actions on
foreign securities, including dividends, are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable
to regulated investment companies under the Internal Revenue Code of 1986, as
amended (the "Code"), and distribute all of its taxable income to its
shareholders. Therefore, no provision has been recorded for Federal income or
excise taxes.
The Fund has a net tax-basis capital loss carryover of approximately $1,804,000
as of December 31, 1999 which may be applied against any realized net taxable
gain of each succeeding fiscal year until fully utilized or until the expiration
date, whichever occurs first. The carryover expires in 2006.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
capital gain, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable, are
translated at the closing daily rate of exchange; and (ii) purchases and sales
of investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Code Section 988 provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred prior to the effectiveness
of Statement of Position 98-5, "Reporting on the Costs of Start-up Activities",
by the Fund in connection with its organization have been deferred and are being
amortized on a straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
capital gain distributions are determined annually in accordance with Federal
tax regulations
<PAGE> 60
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
10
which may differ from generally accepted accounting principles. These
differences primarily relate to foreign denominated securities, certain
securities sold at a loss, and non-deductible organization expenses. As a
result, Net investment income and Net realized gain on investments and foreign
currency transactions for a reporting period may differ significantly in amount
and character from distributions during such period. Accordingly, the Fund may
make reclassifications among certain of its capital accounts without impacting
the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. ("IMI") is the Manager and Investment Adviser of the Fund.
For its services, IMI receives a fee monthly at the annual rate of 1.00% of the
Fund's average net assets. Currently, IMI voluntarily limits the Fund's total
operating expenses (excluding 12b-1 fees and certain other expenses) to an
annual rate of 1.95% of the Fund's average net assets.
Mackenzie Investment Management Inc. ("MIMI"), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the six months ended June 30, 2000, the net amount of underwriting
discount retained by IMDI was $1,414.
Under Service and Distribution Plans, the Fund reimburses IMDI for service fee
payments made to brokers at an annual rate of .25% of its average net assets,
excluding Advisor Class. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $3,223,
$17,206, and $12,961 for Class A, Class B and Class C, respectively, are
reflected as 12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer and shareholder servicing agent for the Fund. For those services, the
Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $3,306, $6,006, $3,638 and $86, for Class A, Class B, Class C and
Advisor Class, respectively, are reflected as Transfer agent in the Statement of
Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in equity securities of companies in the Asia-Pacific
region. Therefore, the Fund is more susceptible to factors adversely affecting
securities within the Asia-Pacific region than is an equity fund that is not
concentrated in such securities to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C and Advisor Class were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................... 181,195 $ 1,383,924 760,594 $ 4,417,001
Issued on reinvestment
of distributions...... -- -- 1,754 13,679
Repurchased............ (48,875) (368,031) (760,739) (4,538,660)
-------- ----------- -------- -----------
Net increase/
(decrease)............ 132,320 $ 1,015,893 1,609 $ (107,980)
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................... 59,529 $ 442,652 189,550 $ 1,317,798
Issued on reinvestment
of distributions...... -- -- 1,107 8,546
Repurchased............ (73,954) (540,208) (112,554) (796,742)
-------- ----------- -------- -----------
Net (decrease)/
increase.............. (14,425) $ (97,556) 78,103 $ 529,602
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................... 41,906 $ 300,921 165,089 $ 1,098,147
Issued on reinvestment
of distributions...... -- -- 1,207 9,364
Repurchased............ (98,550) (720,934) (119,605) (826,304)
-------- ----------- -------- -----------
Net (decrease)/
increase.............. (56,644) $ (420,013) 46,691 $ 281,207
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
------------------------------------------------------------------------
ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................... 34,944 $ 257,152 78,562 $ 577,741
Issued on reinvestment
of distributions...... -- -- 222 1,725
Repurchased............ (51,760) (373,776) (61,724) (457,460)
-------- ----------- -------- -----------
Net
(decrease)/increase... (16,816) $ (116,624) 17,060 $ 122,006
======== =========== ======== ===========
</TABLE>
<PAGE> 61
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
11
<PAGE> 62
03IAPF063000
<PAGE> 63
[IVY FUNDS LOGO]
ANNUAL REPORT
This report and financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
IVY MANAGEMENT, INC.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33422-6139
800.456.5111
DECEMBER 31, 1999
BOARD OF TRUSTEES
John S. Anderegg, Jr.
James W. Broadfoot
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Dianne Lister
Roy J. Glauber
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Edward M. Tighe
OFFICERS
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, Massachusetts
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, Massachusetts
TRANSFER AGENT
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, Florida 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432-6139
800.456.5111
[MACKENZIE LOGO]
IVY CHINA REGION FUND
OVERVIEW
The Ivy China Region Fund invests in equity securities of companies and
countries that are expected to benefit from the economic development and growth
of the China region. The majority of the Fund's holdings are invested in Hong
Kong, Taiwan, South Korea, and mainland China.
For the 12-month period ending December 31, 1999, the Ivy China Region Fund
returned 46.72% compared to its benchmark index, the Hang Seng Index, which
returned 68.80%. (For the Fund's total return with sales charge and performance
commentary, please refer to page 3.) We believe that the Fund's underperformance
is partly due to its exposure to Chinese stocks, which returned just 16.83% over
the same period. Another factor that we believe contributed to the Fund's
lagging performance was its above-average cash position in the final quarter of
1999. The Fund's management team maintained this cash reserve as insurance
against Y2K-related liquidity constraints, and so that the Fund could take
advantage of any Y2K-related sell-off. However, the sell-off did not materialize
and the Hang Seng Index pushed to new heights only to end the year at 16962.1.
MARKET COMMENTARY
Equity markets in the China region performed well in 1999, as the region
recovered from much of the turmoil of the previous two years. We believe the
Hong Kong and Korean markets, representing 58% and 8% of the Ivy China Region
Fund assets at year-end, respectively, exceeded precrisis peaks fueled by
investors' expectations of economic recovery in the region. Chinese equities,
which represent 10% of the Fund, did not perform as well, in our view, primarily
as a result of investor concern over the potential for a devaluation of the
Chinese currency.
Recently, there has been great debate among analysts and economists over
whether China will devalue its currency, the renminbi. While many market
participants believe that a devaluation of the renminbi in 2000 is likely, we
believe that currently it seems less probable. If devaluation of the Chinese
currency occurs, its impact, in our view, will be mixed, with some sectors
benefiting and others suffering. We believe a more important issue for China and
Hong Kong is the continued effort to reform state-owned enterprises. Recently,
the Chinese government showed its strong commitment to deepening and broadening
economic reforms in the financial sector and in state-owned companies. We
believe this should be positive for investments in the region.
While exports from the region appear to have been largely responsible
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2
for accelerating growth in 1999, our research shows domestic consumption remains
quite weak. We believe weak consumer demand remains the major concern in
mainland China, as our analysis shows private consumption accounts for 46% of
gross domestic product. We believe that decelerating retail sales' gains,
falling from over 10% in 1997 down to 6% at the end of 1999, have raised
concerns by economists that China may be losing steam.
"We believe that the recent agreement with the United States, which
paves the way for China to join the World Trade Organization (WTO), has
significant implications for future growth in the region."
TOURISM BENEFITS HONG KONG.
In Hong Kong, our research indicates that consumer demand has recovered somewhat
from the depths of the crisis due to the "feel good factor" of rising stock
prices. However, we expect it will be sometime before local demand reaches
precrisis levels. We expect that strong growth in tourist arrivals from Japan,
Korea, and mainland China may provide a boost to Hong Kong's service-oriented
economy in 2000, further stimulating consumer demand and benefiting the economy,
as our research shows that consumer services represent 70% of Hong Kong's gross
domestic product.
The Fund's largest weighting continues to be Hong Kong, where the market,
as measured by the Hang Seng Index, gained 68.80% in 1999. In our view, the Hong
Kong market provides the best access for investors to secular growth in mainland
China. Many of the infrastructure, manufacturing, consumer goods, and financial
services companies, which we believe are direct beneficiaries of the economic
growth throughout the China region, are domiciled in Hong Kong and are
characterized by seasoned management teams with excellent ties to the mainland.
We expect this level of integration may increase going forward with the
deepening of state-owned enterprise reform in mainland China. If privatization
on the mainland takes hold, the Hong Kong stock market should play a more
important role in providing the much-needed capital resources for restructuring.
KOREAN MARKET REBOUNDS.
While the strength of the recovery in Korea has certainly been impressive, we
have adopted a somewhat cautious view of the market. In our view, the Korean
economy has roared back from the crisis and could be in danger of overheating.
We believe that an interest-rate hike is likely in 2000 and could well
jeopardize the cleanup of the banking system. Strong economic growth and a sharp
increase in earnings may also be leading to complacency among corporations in
Korea, which has the potential to endanger much-needed restructuring.
LOOKING AHEAD.
We believe that the long-term secular trend in the China region will continue to
be upward, largely sustained by growth in demand from the mainland. We believe
that the recent agreement with the United States, which paves the way for China
to join the World Trade Organization (WTO), has significant implications for
future growth in the region. We believe the agreement highlights the Chinese
government's commitment to accelerating reforms and reducing the role of the
state-owned sector in the economy. In our opinion, privatization of state-owned
assets could attract significant foreign direct investment and increase the
market's profile within the international investment community. Although there
may be short-term dislocations in the Chinese economy, particularly as an
increase in imports may threaten some of China's domestic manufacturers, the net
effect of China's membership in the WTO should be extremely positive for China
over the next decade.
<PAGE> 65
3
PERFORMANCE COMPARISON OF THE FUND SINCE
INCEPTION (10/93) OF A $10,000 INVESTMENT
[CHART]
IVY CHINA REGION FUND
PERFORMANCE COMMENTARY
In 1999, the Ivy China Region Fund returned 46.72% compared to its benchmark,
the Hang Seng Index, which returned 68.80%. In our view, the Fund's exposure to
Chinese stocks, which returned just 16.83% over the period, and an above-average
cash position in the final quarter of 1999 contributed to the Fund's
underperformance versus its benchmark. The sell-off we expected in December was
postponed into the first week of 2000. Early in the year, we plan to take
advantage of some attractive valuations--putting the Fund's cash to work.
The Lipper Average China Region Fund represents the performance of the average
China fund as measured by Lipper Inc. It is not possible to invest in a
benchmark. The Hang Seng Index is an unmanaged index of stocks which assumes
reinvestment of dividends and, unlike Fund returns, does not reflect any fees or
expenses. It is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise
noted. The performance of all other share classes will vary relative to that of
Class A shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3) Advisor Class(4)
IVY CHINA REGION FUND w/ w/o w/ w/o w/ w/o
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb. Reimb. Reimb. Reimb. Reimb.
FOR PERIODS ENDING
DECEMBER 31, 1999 w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
40.33% 45.33% 39.38% 44.38%
1 year C: C: C: C:
38.28% 37.38% 44.41% 45.41% 43.27% 44.27% 46.29% 45.91%
B: B: B: B:
1.02% 1.40% .56% .94%
5 year C: C: C: C:
.97% .50% n/a n/a n/a n/a n/a n/a
B: B: B: B:
(1.29)% (1.29)% (1.74)% (1.74)%
Since Inception(5) C: C: C: C:
(1.48)% (1.95)% (.71)% (.71)% (1.21)% (1.21)% 9.01% 8.59%
</TABLE>
(1) Class A performance figures include the maximum sales charge of 5.75%.
(2) Class B performance figures are calculated with and without the
applicable Contingent Deferred Sales Charge (CDSC), up to a maximum of
5.00%.
(3) Class C performance figures are calculated with and without the
applicable CDSC,up to a maximum of 1.00%.
(4) Advisor Class shares are not subject to an initial sales charge or a
CDSC.
(5) Class A and Class B commenced operations October 22, 1993; Class C
commenced operations April 30, 1996; Advisor Class commenced operations
February 10, 1998.
Total returns were higher due to reimbursement of certain Fund expenses. See
Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy China Region Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
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4
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES -- 86.90% SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
CHINA -- 9.84%
------------------------------------
Anhui Expressway Co. Ltd. ........... 2,744,000 $ 257,685
First Tractor Company Limited -- H
Shares............................. 1,362,000 192,731
Guangdong Kelon Electrical Holdings
Co. Ltd. -- H Shares............... 266,000 201,890
Hainan Airlines Co., Ltd.(a)......... 350,000 108,500
Huaneng Power International, Inc. ... 200,000 47,597
Inner Mongolia Erdos Cashmere
Products Co. Ltd. 'B'.............. 681,000 153,906
Qingling Motors Company -- H
Shares............................. 1,900,000 229,754
Shanghai Dazhong Taxi Company --
Class B............................ 639,000 209,592
Shanghai Diesel Engine Co.
Ltd. -- Class B.................... 648,000 120,528
Shanghai Posts & Telecommunications
Equipment Co. Ltd. -- Class B...... 817,440 150,409
Shanghai Worldbest Co., Ltd. ........ 432,000 84,672
Shenzhen Konka Electronics Group Ltd.
Class B............................ 312,000 236,804
Zhejiang Southeast Electric Power
Co., Ltd. -- Class B............... 289,393 69,454
Zhenhai Refining and Chemical Company
Ltd. .............................. 200,000 35,505
-----------
2,099,027
-----------
HONG KONG -- 58.40%
------------------------------------
Asia Satellite Telecommunications
Holdings Ltd. ..................... 4,000 140,000
Asia Satellite Telecommunications
Holdings Ltd. ADR.................. 100,000 315,815
Cathay Pacific Airways............... 230,000 409,788
CDL Hotels International Ltd......... 440,000 175,467
Cheung Kong Holdings Ltd. ........... 100,000 1,270,337
Cheung Kong Infrastructure
Holdings........................... 111,000 214,188
China Hong Kong Photo Products
Holdings, Ltd. .................... 2,600,000 334,468
China Southern Airlines Company
Limited(a)......................... 1,458,000 318,851
Citic Pacific Ltd. .................. 150,000 564,415
CLP Holdings Ltd. ................... 30,000 138,161
Cosco Pacific Limited................ 326,000 270,495
Dao Heng Bank Group Ltd. ............ 66,000 340,463
Founder Hong Kong Ltd. .............. 167,600 204,823
Giordano International Ltd. ......... 404,000 415,770
Gold Peak Industries (Holdings)
Limited............................ 983,000 207,386
Guangdong Tannery Ltd. .............. 39,950 1,233
Hang Seng Bank....................... 20,900 238,614
Hong Kong & China Gas Company
Ltd. .............................. 171,072 234,374
Hong Kong Electric Holdings Ltd. .... 120,000 375,119
Hong Kong Land Holdings Ltd. ........ 289,000 427,720
Hong Kong Telecommunications Ltd. ... 124,000 358,113
HSBC Holdings plc.................... 75,600 1,060,059
i-CABLE Communications Limited(a).... 172 233
Jardine International Motor Holdings
Ltd. .............................. 524,000 262,892
Jardine Strategic Holdings Ltd. ..... 190,250 378,598
JCG Holdings Ltd. ................... 188,000 105,808
Lamex Holdings Ltd. ................. 780,000 18,563
Li & Fung Ltd. ...................... 199,600 500,699
New World Development Company Ltd. .. 196,535 442,445
New World Infrastructure Ltd. ....... 200,133 256,167
Orient Overseas International
Ltd. .............................. 1,218,000 473,974
Siu-Fung Ceramics Holdings, Ltd...... 1,110,327 17,997
Sun Hung Kai Properties Ltd. ........ 44,800 466,815
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
Swire Pacific Ltd. .................. 39,500 $ 233,234
Tingyi (Cayman Island) Holding
Co.(a)............................. 1,494,000 105,705
Union Bank of Hong Kong Ltd. ........ 130,249 108,911
VTech Holdings Limited............... 108,000 351,501
Wharf Holdings Ltd. ................. 69,000 160,217
Wing Hang Bank Limited............... 131,000 448,265
Yue Yuen Industrial Holdings......... 47,200 112,937
-----------
12,460,620
-----------
MALAYSIA -- 0.09%
------------------------------------
Leader Universal Holdings -- Class
A.................................. 61,666 19,798
-----------
SINGAPORE -- 2.76%
------------------------------------
Clipsal Industries Limited........... 114,816 126,807
Elec & Eltek International Co.
Ltd. .............................. 142,500 461,700
-----------
588,507
-----------
SOUTH KOREA -- 7.93%
------------------------------------
Hyundai Motor Company Ltd. .......... 14,181 225,334
Pohang Iron & Steel Company Ltd. .... 2,000 233,934
Samsung Electronics Co., Ltd. ....... 3,564 836,886
Samsung Electronics Co., Ltd. 144A
Sponsored GDR...................... 640 50,880
Samsung Electronics Co., Ltd. 144A
Sponsored GDR, Registered S, N/V... 430 52,568
Shinhan Bank......................... 26,840 291,430
-----------
1,691,032
-----------
TAIWAN -- 7.88%
------------------------------------
Acer Incorporation(a)................ 166,390 501,558
Compal Electronics Inc. ............. 76,076 256,013
Far Eastern Department Stores
Ltd. .............................. 274,854 119,235
Hon Hai Precision Industry Co.,
Ltd.(a)............................ 49,000 365,742
Taiwan Semiconductor Manufacturing
Company(a)......................... 82,300 438,408
-----------
1,680,956
-----------
TOTAL INVESTMENTS -- 86.90%
(Cost -- $15,968,670)
(Cost on Federal income tax
basis -- $16,482,806).......... 18,539,940
OTHER ASSETS, LESS LIABILITIES -- 13.10% 2,795,673
-----------
NET ASSETS -- 100%................... $21,335,613
===========
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
N/V -- Non voting security
(a) Non-income producing security
OTHER INFORMATION:
At December 31, 1999, net unrealized appreciation based on
cost for financial statement and Federal income tax purposes
is as follows:
Gross unrealized appreciation............... $ 5,726,709
Gross unrealized depreciation............... (3,155,439)
-----------
Net unrealized appreciation for
financial statement purposes.................... 2,571,270
Less: tax basis adjustments................. (514,136)
-----------
Net unrealized appreciation for Federal
income tax purposes................... $ 2,057,134
===========
Purchases and sales of securities other than short-term
obligations aggregated $3,966,467 and $7,433,894,
respectively, for the period ended December 31, 1999.
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 67
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5
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $15,968,670)...... $18,539,940
Cash........................................................ 2,825,556
Receivables
Fund shares sold.......................................... 12,549
Dividends and interest.................................... 10,824
Manager for expense reimbursement......................... 9,694
Other assets................................................ 6,177
-----------
Total assets.............................................. 21,404,740
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 9,611
Management fee............................................ 17,926
12b-1 service and distribution fees....................... 9,675
Other payables to related parties......................... 13,114
Accrued expenses............................................ 18,801
-----------
Total liabilities......................................... 69,127
-----------
NET ASSETS.................................................. $21,335,613
===========
CLASS A
Net asset value and redemption price per share
($12,737,758/1,392,718 shares outstanding)................ $ 9.15
===========
Maximum offering price per share ($9.15 x 100/94.25)*....... $ 9.71
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($7,508,480/830,867 shares outstanding)............. $ 9.04
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($776,327/85,577 shares outstanding)................ $ 9.07
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($313,048/34,649 shares outstanding)................ $ 9.03
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $25,549,290
Accumulated net investment loss on investments and foreign
currency transactions................................... (6,784,955)
Net unrealized appreciation on investments and foreign
currency transactions................................... 2,571,278
-----------
NET ASSETS.................................................. $21,335,613
===========
</TABLE>
<TABLE>
<S> <C>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
</TABLE>
The accompanying notes are an integral part of the financial statements.
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 541,497
Interest.................................................. 72,738
----------
614,235
----------
EXPENSES
Management fee............................................ $191,792
Transfer agent............................................ 98,352
Administrative services fee............................... 19,179
Custodian fees............................................ 54,365
Blue Sky fees............................................. 23,816
Auditing and accounting fees.............................. 22,619
Shareholder reports....................................... 16,136
Fund accounting........................................... 36,086
Trustees' fees............................................ 9,240
12b-1 service and distribution fees....................... 104,517
Legal..................................................... 26,936
Other..................................................... 1,545
----------
604,583
Expenses reimbursed by Manager............................ (125,910)
----------
Net expenses.......................................... 478,673
----------
NET INVESTMENT INCOME....................................... 135,562
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 924,189
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 6,328,151
----------
Net gain on investment transactions................... 7,252,340
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $7,387,902
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 69
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--------------------------------------------------------------------------------
7
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income..................................... $ 135,562 $ 242,809
Net realized gain (loss) on investments and foreign
currency transactions................................... 924,189 (5,197,689)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 6,328,151 1,012,350
----------- -----------
Net increase (decrease) resulting from operations..... 7,387,902 (3,942,530)
----------- -----------
Class A distributions
Dividends from net investment income...................... (116,226) (124,272)
Distributions from capital gains.......................... (9,904) --
----------- -----------
Total distributions to Class A shareholders........... (126,130) (124,272)
----------- -----------
Class B distributions
Dividends from net investment income...................... (17,335) (44,037)
Distributions from capital gains.......................... (6,000) --
----------- -----------
Total distributions to Class B shareholders........... (23,335) (44,037)
----------- -----------
Class C distributions
Dividends from net investment income...................... (944) (2,395)
Distributions from capital gains.......................... (623) --
----------- -----------
Total distributions to Class C shareholders........... (1,567) (2,395)
----------- -----------
Advisor Class distributions
Dividends from net investment income...................... (4,321) (121)
Distributions from capital gains.......................... (236) --
----------- -----------
Total distributions to Advisor Class shareholders..... (4,557) (121)
----------- -----------
Fund share transactions (Note 5)
Class A................................................... (759,913) (616,533)
Class B................................................... (1,087,549) (87,455)
Class C................................................... (217,633) (382,691)
Advisor Class............................................. 313,989 12,424
----------- -----------
Net decrease resulting from Fund share transactions... (1,751,106) (1,074,255)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 5,481,207 (5,187,610)
NET ASSETS
Beginning of period....................................... 15,854,406 21,042,016
----------- -----------
END OF PERIOD............................................. $21,335,613 $15,854,406
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ -- $ 3,264
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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FINANCIAL HIGHLIGHTS
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8
<TABLE>
<CAPTION>
CLASS A for the year ended December 31,
------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
SELECTED PER SHARE DATA ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 6.30 $ 8.04 $ 10.30 $ 8.58 $ 8.61
----------------------------------------------------
Income (loss) from investment operations
Net investment income(a).................................. .08 .13 .02(b) .03 .14
Net gains or losses on securities (both realized and
unrealized)............................................. 2.86 (1.78) (2.28)(b) 1.74 (.01)
----------------------------------------------------
Total from investment operations.......................... 2.94 (1.65) (2.26) 1.77 .13
----------------------------------------------------
Less distributions
Dividends
From net investment income.............................. .08 .09 -- .03 .14
In excess of net investment income...................... -- -- -- .02 --
Distributions
From capital gains...................................... .01 -- -- -- --
In excess of capital gains.............................. -- -- -- -- .02
----------------------------------------------------
Total distributions..................................... .09 .09 -- .05 .16
----------------------------------------------------
Net asset value, end of period.............................. $ 9.15 $ 6.30 $ 8.04 $ 10.30 $ 8.58
----------------------------------------------------
----------------------------------------------------
Total return (%)(c)......................................... 46.72 (20.56) (21.94) 20.50 1.59
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $12,738 $ 9,061 $12,020 $15,290 $12,855
Ratio of expenses to average net assets(d)
With expense reimbursement (%)............................ 2.19 2.30 2.44 2.20 2.20
Without expense reimbursement (%)......................... 2.84 2.86 2.51 2.48 2.73
Ratio of net investment income to average net assets
(%)(a).................................................... 1.01 1.60 .28 .32 1.61
Portfolio turnover rate (%)................................. 23 56 20 22 25
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B for the year ended December 31,
------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
SELECTED PER SHARE DATA ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 6.24 $ 7.96 $ 10.28 $ 8.58 $ 8.61
----------------------------------------------------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .02 .05 (.04)(b) (.04) .08
Net gains or losses on securities (both realized and
unrealized)............................................. 2.81 (1.73) (2.28)(b) 1.74 (.02)
----------------------------------------------------
Total from investment operations.......................... 2.83 (1.68) (2.32) 1.70 .06
----------------------------------------------------
Less distributions
Dividends
From net investment income.............................. .02 .04 -- -- .08
In excess of net investment income...................... -- -- -- -- .01
Distributions from capital gains.......................... .01 -- -- -- --
----------------------------------------------------
Total distributions..................................... .03 .04 -- -- .09
----------------------------------------------------
Net asset value, end of period.............................. $ 9.04 $ 6.24 $ 7.96 $ 10.28 $ 8.58
----------------------------------------------------
----------------------------------------------------
Total return (%)(c)......................................... 45.33 (21.04) (22.57) 19.67 .83
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 7,508 $ 6,080 $ 7,893 $ 8,995 $ 6,905
Ratio of expenses to average net assets(d)
With expense reimbursement (%)............................ 2.97 3.08 3.17 2.95 2.95
Without expense reimbursement (%)......................... 3.62 3.64 3.24 3.23 3.48
Ratio of net investment income (loss) to average net assets
(%)(a).................................................... .24 .82 (.45) (.43) .86
Portfolio turnover rate (%)................................. 23 56 20 22 25
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 71
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
9
<TABLE>
<CAPTION>
for the period
April 30, 1996
(commencement)
CLASS C for the year ended December 31, to December 31,
---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
SELECTED PER SHARE DATA -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 6.25 $ 7.94 $ 10.24 $ 9.44
----------------------------------------------------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .02 .08 (.03)(b) --
Net gains or losses on securities (both realized and
unrealized)............................................. 2.82 (1.75) (2.27)(b) .89
----------------------------------------------------
Total from investment operations.......................... 2.84 (1.67) (2.30) .89
----------------------------------------------------
Less distributions
Dividends
From net investment income.............................. .01 .02 -- --
In excess of net investment income...................... -- -- -- .09
Distributions from capital gains.......................... .01 -- -- --
----------------------------------------------------
Total distributions..................................... .02 .02 -- .09
----------------------------------------------------
Net asset value, end of period.............................. $ 9.07 $ 6.25 $ 7.94 $ 10.24
----------------------------------------------------
----------------------------------------------------
Total return (%)............................................ 45.41(c) (21.02)(c) (22.46)(c) 9.39(e)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 776 $ 704 $ 1,129 $ 449
Ratio of expenses to average net assets(d)
With expense reimbursement (%)............................ 3.03 2.98 3.05 2.71(f)
Without expense reimbursement (%)......................... 3.68 3.54 3.12 2.99(f)
Ratio of net investment income (loss) to average net assets
(%)(a).................................................... .18 .92 (.33) (.19)(f)
Portfolio turnover rate (%)................................. 23 56 20 22
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
for the period
for the year February 10, 1998
ended (commencement)
ADVISOR CLASS December 31, to December 31,
----------------------------------------------------------------------------------------------------
1999 1998
SELECTED PER SHARE DATA --------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 6.27 $ 7.89
----------------------------------
Income (loss) from investment operations
Net investment income(a).................................. .04 .08
Net gains or losses on securities (both realized and
unrealized)............................................. 2.86 (1.62)
----------------------------------
Total from investment operations.......................... 2.90 (1.54)
----------------------------------
Less distributions
From net investment income................................ .13 .08
Distributions from capital gains.......................... .01 --
----------------------------------
Total distributions..................................... .14 .08
----------------------------------
Net asset value, end of period.............................. $ 9.03 $ 6.27
----------------------------------
----------------------------------
Total return (%)............................................ 46.29(c) (19.56)(e)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 313 $ 10
Ratio of expenses to average net assets(d)
With expense reimbursement (%)............................ 1.79 2.92(f)
Without expense reimbursement (%)......................... 2.44 3.48(f)
Ratio of net investment income to average net assets
(%)(a).................................................... 1.42 .98(f)
Portfolio turnover rate (%)................................. 23 56
</TABLE>
<TABLE>
<S> <C> <C>
(a) Net investment income (loss) is (b) Based on average shares (c) Total return does not reflect a
net of expenses reimbursed by outstanding sales charge.
Manager.
(d) From 1995 to 1998, total (e) Total return represents (f) Annualized
expenses include fees paid aggregate total return and does not
indirectly, if any, through an reflect a sales charge.
expense offset arrangement.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 72
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY CHINA REGION FUND
--------------------------------------------------------------------------------
10
NOTES TO FINANCIAL STATEMENTS
Ivy China Region Fund (the "Fund"), is a diversified series of shares of Ivy
Fund. The shares of beneficial interest are assigned no par value and an
unlimited number of shares of Class A, Class B, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. Preparation of the
financial statements includes the use of management estimates. Actual results
could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock exchange, or
The Nasdaq Stock Market, Inc. ("Nasdaq") system, are valued at the last quoted
sale price reported as of the close of regular trading on the exchange on which
the security is traded most extensively. If there were no sales on the exchange
the security is traded most extensively and the security is traded on more than
one exchange, or on one or more exchanges in the over-the-counter market, the
exchange reflecting the last quoted sale will be used. Otherwise, the security
is valued at the calculated mean between the last bid and asked price on the
exchange. Securities not traded on an exchange or Nasdaq, but traded in another
over-the-counter market are valued at the average between the current bid and
asked price in such markets. Short-term obligations and commercial paper are
valued at amortized cost, which approximates market. Debt securities (other than
short-term obligations and commercial paper) are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees
(the "Board"), which determines valuations based upon market transactions for
normal, institutional-size trading units of such securities, or on the basis of
dealer quotes. All other securities are valued at their fair value as determined
in good faith by the Valuation Committee of the Board; as of December 31, 1999,
there were no Board valued securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Corporate actions,
including dividends are recorded on the ex-dividend date. If such information is
not available on the ex-dividend date, corporate actions are recorded as soon as
reliable information is available from the Fund's sources. Realized gains and
losses from security transactions are calculated on an identified cost basis.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1999, the interest rate was 3.75%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable
to regulated investment companies under the Internal Revenue Code of 1986 (the
"Code"), as amended, and distribute all of its taxable income to its
shareholders. Therefore, no provision has been recorded for Federal income or
excise taxes.
The Fund has a net tax-basis capital loss carryover of approximately $6,282,000
as of December 31, 1999, which may be applied against any realized net taxable
capital gain of each succeeding fiscal year until fully utilized or until the
expiration date, whichever occurs first. The carryover expires $264,000 in 2002,
$203,000 in 2003, $1,033,000 in 2004, $416,000 in 2005, $4,238,000 in 2006 and
$128,000 in 2007.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable, are
translated at the closing daily rate of exchange; and (ii) purchases and sales
of investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Code Section 988 provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
RECLASSIFICATIONS -- The timing and characterization of certain income and
capital gain distributions are determined annually in accordance with Federal
tax regulations which may differ from generally accepted accounting principles.
These differences primarily relate to foreign denominated securities and certain
securities sold at a loss. As a result, Net investment income and Net realized
gain on investments and foreign currency transactions for a reporting period may
differ significantly in amount and character from distributions during such
period. Accordingly, the Fund may make reclassifications among certain
<PAGE> 73
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11
of its capital accounts without impacting the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund.
For its services, IMI receives a fee monthly at the annual rate of 1.00% of the
Fund's average net assets. Currently, IMI 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.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended December 31, 1999, the net amount of underwriting
discount retained by IMDI was $3,502.
Under Service and Distribution Plans, the Fund reimburses IMDI for service fee
payments made to brokers at an annual rate of .25% of its average net assets,
excluding Advisor Class. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C shares. IMDI may use such distribution fee
for purposes of advertising and marketing shares of the Fund. Such fees of
$28,776, $68,312 and $7,429, for Class A, Class B and Class C, respectively, are
reflected as 12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the
transfer and shareholder servicing agent for the Fund. For those services, the
Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $57,560, $36,099, $4,363 and $330, for Class A, Class B, Class C and
Advisor Class respectively, are reflected as Transfer agent in the Statement of
Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in equity securities of companies in the China
region. Therefore, the Fund is more susceptible to factors adversely affecting
securities within the China region than is an equity fund that is not
concentrated in such securities to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C, and Advisor Class were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 2,892,229 $ 19,961,432 2,287,353 $ 14,147,859
Issued on
reinvestment of
distributions....... 12,715 113,544 17,535 109,945
Repurchased.......... (2,949,520) (20,834,889) (2,363,014) (14,874,337)
---------- ------------ ---------- ------------
Net decrease......... (44,576) $ (759,913) (58,126) $ (616,533)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 147,314 $ 1,099,716 665,157 $ 4,445,368
Issued on
reinvestment of
distributions....... 1,988 17,556 5,669 35,150
Repurchased.......... (293,462) (2,204,821) (687,061) (4,567,973)
---------- ------------ ---------- ------------
Net decrease......... (144,160) $ (1,087,549) (16,235) $ (87,455)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 64,217 $ 459,612 275,555 $ 1,869,126
Issued on
reinvestment of
distributions....... 105 930 245 1,523
Repurchased.......... (91,400) (678,175) (305,285) (2,253,340)
---------- ------------ ---------- ------------
Net decrease......... (27,078) $ (217,633) (29,485) $ (382,691)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------------
ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 123,402 $ 1,090,855 82,048 $ 621,435
Issued on
reinvestment of
distributions....... 478 4,224 19 121
Repurchased.......... (90,832) (781,090) (80,466) (609,132)
---------- ------------ ---------- ------------
Net increase......... 33,048 $ 313,989 1,601 $ 12,424
========== ============ ========== ============
</TABLE>
<PAGE> 74
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY CHINA REGION FUND
--------------------------------------------------------------------------------
12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
IVY CHINA REGION FUND (THE "FUND"):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with 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 statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities owned at
December 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 4, 2000
<PAGE> 75
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13
SHAREHOLDER MEETING RESULTS
(UNAUDITED)
On September 30, 1999, a special shareholder meeting (the "Meeting") was held at
the offices of Mackenzie Investment Management Inc., Boca Raton, Florida, for
the following purposes (and with the following results):
PROPOSAL 1: With respect to Ivy Fund, to elect Trustees.
<TABLE>
<CAPTION>
----------------------------------------------------
NOMINEE: FOR: WITHHOLD:
----------------------------------------------------
<S> <C> <C>
James W. Broadfoot........... 1,279,406 53,249
Keith J. Carlson............. 1,275,655 57,000
Stanley Channick............. 1,277,732 54,923
Roy J. Glauber............... 1,280,397 52,258
Edward M. Tighe.............. 1,277,386 55,268
</TABLE>
The other Trustees of Ivy Fund previously elected by shareholders whose term of
office continued after the meeting were John S. Anderegg, Jr., Paul H. Broyhill,
Frank W. DeFriece, Jr., Joseph G. Rosenthal, Richard N. Silverman and J. Brendan
Swan.
PROPOSAL 2: With respect to the Fund, to ratify or reject the action of the
Board of Trustees in selecting PricewaterhouseCoopers LLP as independent
accountants for the fiscal year ending December 31, 1999.
<TABLE>
<CAPTION>
------------------------------
FOR: AGAINST: ABSTAIN:
------------------------------
<S> <C> <C>
1,271,758 31,214 29,683
</TABLE>
PROPOSAL 3: With respect to the Fund, to approve or disapprove the revision of
certain fundamental investment policies.
3.1 DIVERSIFICATION:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,016,865 30,108 55,517 230,165
</TABLE>
3.2 BORROWING:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,008,809 39,531 54,150 230,165
</TABLE>
3.3 SENIOR SECURITIES:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,013,577 31,917 56,996 230,165
</TABLE>
3.4 UNDERWRITING:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,011,615 33,087 57,788 230,165
</TABLE>
3.5 REAL ESTATE:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,013,456 34,414 54,620 230,165
</TABLE>
3.6 COMMODITIES:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,005,733 39,279 57,478 230,165
</TABLE>
3.7 LOANS:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,012,209 32,150 58,131 230,165
</TABLE>
3.8 CONCENTRATION:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,014,775 32,512 55,203 230,165
</TABLE>
3.9 OTHER POLICIES:
<TABLE>
<CAPTION>
--------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
--------------------------------------------
<S> <C> <C> <C>
1,008,557 36,368 57,565 230,165
</TABLE>
---------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner (or other persons entitled to vote) nor has discretionary
power to vote on a particular matter.
<PAGE> 76
14
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
<PAGE> 77
15
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
<PAGE> 78
02ICRF123199
<PAGE> 79
[IVY FUNDS LOGO]
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432-6139
800.456.5111
December 31, 1999
Board of Trustees
John S. Anderegg, Jr.
James W. Broadfoot
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Dianne Lister
Roy J. Glauber
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Edward M. Tighe
Officers
Keith J. Carlson, Chairman
James W. Broadfoot, President
C. William Ferris, Secretary/Treasurer
Legal Counsel
Dechert Price & Rhoads
Boston, Massachusetts
Custodian
Brown Brothers Harriman & Co.
Boston, Massachusetts
Transfer Agent
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, Florida 33431-0922
800.777.6472
Auditors
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
Distributor
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432-6139
800.456.5111
[MACKENZIE LOGO]
IVY ASIA PACIFIC FUND
Overview
The Ivy Asia Pacific Fund returned 45.10% for the 12-month period ending
December 31, 1999,versus the Morgan Stanley Capital International Far East Free
(Excluding-Japan) Index, which returned 59.40% for the same time period. (For
the Fund's total return with sales charge and performance commentary, please
refer to page 3.) After relatively strong performance in the first nine months
of the year, the Fund lost substantial ground relative to the Index in the final
quarter of the year. We believe this underperformance can largely be attributed
to two factors. The first is an above-average cash position, which we maintained
as insurance against Y2K-related liquidity constraints and so that we could take
advantage of any Y2K-related sell-off. Unfortunately, markets moved sharply in
the opposite direction from what we expected, with the anticipated December
sell-off postponed into the first week of the new year. The other factor that we
believe impacted the Fund's fourth-quarter 1999 performance was underweighting
in telecommunications and technology stocks. According to our research, in the
final quarter of the year, Asian technology stocks, which are heavily
represented in the Taiwan market, were swept up in a global "Internet mania."
Telecommunications stocks also moved in tandem with the global technology stock
rally. Performance from Asian telecommunications stocks in the fourth quarter
was concentrated primarily in three companies, which do not meet the Ivy Asia
Pacific Fund's value criteria. The fourth quarter rally in these stocks pushed
already record-high valuations even further. Given our view that prices for
these stocks have already dramatically overshot even optimistic growth
prospects, we continue to approach these sectors with great caution.
As we move into 2000, and the recovery from the recent economic crisis
broadens, we believe the Ivy Asia Pacific Fund should be positioned to benefit
from two main themes: an anticipated recovery in consumer demand growth and a
resumption in investment and loan growth, as capacity utilization improves. We
expect the upward revisions in growth estimates to continue if the recovery
gains momentum. We believe that as volumes and pricing power pickup,
accelerating economic growth could fuel top-line growth for companies in the
region.
Market Commentary
Our research indicates that equity markets in Asia, excluding Japan, performed
well in 1999, underpinned by better-than-expected economic recovery from the
1998 financial crisis. We believe that looser monetary conditions and strong
demand for exports from developed
<PAGE> 80
2
markets were largely responsible for the snap-back from 1998's depressed levels
of economic activity, while domestic demand remained subdued. However,
according to our research, we are starting to see signs of a nascent recovery in
domestic demand in many economies in the region. Initial reports from Hong
Kong, which has lagged in the regional recovery so far, point to significant
year-on-year increases in department store sales since mid-November. We believe
that a rebound in consumer confidence is critical to further driving the
regional recovery.
In addition to economic recovery, we expect that corporate
restructuring should become a powerful theme in the region. We believe much of
the turmoil of the last two years resulted from a sharp cyclical adjustment,
which, in turn, revealed some of the excesses of over a decade of considerable
growth. Looking forward, we expect higher-quality growth in Asia due to the
recent crisis, as we anticipate that structural weaknesses will be corrected and
corporations will streamline their operations. The potential for earnings growth
driven by restructuring-related gains in Asia could be significant. Longer term,
we believe investors in the Asia Pacific (non-Japan) region should benefit from
the positive changes taking place.
"Our research indicates that equity markets in Asia, excluding
Japan, performed well in 1999, underpinned by
better-than-expected economic recovery from the 1998
financial crisis."
Outlook for Hong Kong.
The Fund's largest weighting (37% of assets) continues to be Hong Kong, which
gained 68% in 1999. We expect the economic recovery, which was somewhat subdued
in 1999, will gain strength in 2000. Analysts' estimates for economic growth in
2000, currently around 5%, are undergoing rapid upgrades. We believe consumer
demand has recovered somewhat due to the "feel good factor" that resulted from
rising stock prices. However, we expect it may be some time before local demand
reaches precrisis levels. The strong growth in tourism from Japan, Korea, and
mainland China is expected to provide a boost to Hong Kong's service-oriented
economy. (Services represent 70% of Hong Kong's gross domestic product.)
In Singapore, our research shows that strong electronics exports
continue to support economic recovery. However, we think that positive
fundamentals have largely been reflected in stock prices.
Malaysia making strides.
We continue to be optimistic for the Malaysian market, which should be
reintroduced to regional indexes since its exclusion in September 1998. In our
view, the equity market, which remains 27% below its precrisis peak, has already
started to benefit from the return of foreign investors, although it continues
to be underowned. We believe this market offers strong macroeconomic
fundamentals, with a competitive exchange rate driving continued growth in
exports. Our research also indicates that domestic demand is picking up, ahead
of some of its neighbors in Southeast Asia. In our opinion, political risks
remain the major concern, although we believe this is largely reflected in share
prices.
Cautious about Korea.
A strong recovery in Korea is responsible for our somewhat cautious view of that
market. The Korean economy has roared back from the crisis and we believe it
could be in danger of overheating. We believe the likelihood of an
interest-rate hike this year could well jeopardize the cleanup of the banking
system. We think that strong economic growth and a sharp increase in earnings
may also lead to complacency among corporations in Korea, endangering their
much-needed restructuring.
<PAGE> 81
3
Performance Comparison of the Fund Since
Inception (1/97) of a $10,000 Investment
[CHART]
Ivy Asia Pacific Fund
Performance Commentary
For the 12-month period ending December 31, 1999, the Ivy Asia Pacific Fund
returned 45.10% versus 59.40% for its benchmark index, the Morgan Stanley
Capital International (MSCI) Far East Free (Excluding-Japan) Index. The Fund
performed well relative to its benchmark for the first nine months of the year
but underperformed the Index during the fourth quarter. We believe this
underperformance was primarily because of the Fund's larger-than-normal cash
position as insurance against Y2K-related liquidity issues and an underweighting
in telecommunications and technology stocks.
The Morgan Stanley Capital International (MSCI) Far East Free (Excluding-Japan)
Index is an unmanaged index of stocks which assumes reinvestment of dividends
and, unlike Fund returns, does not reflect any fees or expenses. It is not
possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise
noted. The performance of all other share classes will vary relative to that of
Class A shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3) Advisor Class(4)
----------------- ----------------------------------- ----------------
IVY ASIA PACIFIC FUND w/ w/o w/ w/o w/ w/o
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb. Reimb. Reimb. Reimb. Reimb.
FOR PERIODS ENDING ------ ------ ------ ------ ------ ------
DECEMBER 31, 1999 w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
B: B: B: B:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
38.64% 43.64% 36.54% 41.54%
C: C: C: C:
1 year 36.76% 34.38% 42.92% 43.92% 40.61% 41.61% n/a n/a
----- ----- ----- ----- ----- ----- --- ---
B: B: B: B:
(8.21)% (7.26)% (10.29)% (9.37)%
C: C: C: C:
Since Inception(5) (8.38)% (11.11)% (8.45)% (8.45)% (10.75)% (10.75)% 4.14% 3.59%
----- ----- ---- ---- ----- ----- ---- ----
</TABLE>
(1) Class A performance figures include the maximum sales charge of 5.75%.
(2) Class B performance figures are calculated with and without the
applicable Contingent Deferred Sales Charge (CDSC), up to a maximum of
5.00%.
(3) Class C performance figures are calculated with and without the
applicable CDSC, up to a maximum of 1.00%.
(4) Advisor Class shares are not subject to an initial sales charge or a
CDSC.
(5) Class A, Class B and Class C commenced operations January 1, 1997;
Advisor Class commenced operations July 1, 1999.
Total returns were higher due to reimbursement of certain Fund expenses. See
Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Asia Pacific Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
<PAGE> 82
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
4
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES -- 85.08% SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
AUSTRALIA -- 1.39%
-------------------------------------
National Australia Bank Ltd........... 4,099 $ 62,494
Westpac Banking Corp. Ltd............. 9,000 61,876
----------
124,370
----------
CHINA -- 0.67%
-------------------------------------
Anhui Expressway Co. Ltd.............. 110,000 10,330
Qingling Motors Company -- H Shares... 288,000 34,826
Zhenhai Refining and Chemical Company
Ltd................................. 84,000 14,912
----------
60,068
----------
HONG KONG -- 36.62%
-------------------------------------
Asia Satellite Telecommunications
Holdings Ltd. ADR................... 30,000 94,745
CDL Hotels International Ltd.......... 360,000 143,564
Cheung Kong Holdings Ltd.............. 26,000 330,287
China Hong Kong Photo Products
Holdings, Ltd....................... 926,000 119,122
China Resources Enterprise Limited.... 26,000 41,641
Citic Pacific Ltd..................... 48,000 180,613
CLP Holdings Ltd...................... 23,000 105,924
Dao Heng Bank Group Ltd............... 31,000 159,914
Giordano International Ltd............ 274,000 281,983
Gold Peak Industries (Holdings)
Limited............................. 200,000 42,194
Guangdong Kelon Electrical Holdings
Co. Ltd. -- H. Shares............... 39,000 29,600
Hong Kong Electric Holdings Ltd....... 43,000 134,418
Hong Kong Land Holdings Ltd........... 52,000 76,960
Hong Kong Telecommunications Ltd...... 46,800 135,159
HSBC Holdings plc..................... 25,600 358,962
i-CABLE Communications Limited(a)..... 84 114
Jardine International Motor Holdings
Ltd................................. 160,000 80,272
Jardine Matheson Holdings Ltd......... 16,200 63,828
Jardine Strategic Holdings Ltd........ 30,500 60,695
JCG Holdings Ltd...................... 78,000 43,899
Moulin International Holding Ltd...... 230,000 22,191
New World Development Company Ltd..... 65,000 146,330
Orient Overseas International Ltd..... 272,000 105,846
Sun Hung Kai Properties Ltd........... 8,000 83,360
Swire Pacific Ltd..................... 17,000 100,379
Union Bank of Hong Kong Ltd........... 12,399 10,368
VTech Holdings Limited................ 29,000 94,384
Wharf Holdings Ltd.................... 33,810 78,506
Wing Hang Bank Limited................ 35,000 119,765
Yue Yuen Industrial Holdings.......... 13,000 31,106
----------
3,276,129
----------
INDONESIA -- 1.58%
-------------------------------------
PT Bank Dagang Nasional Indonesia Tbk
Warrants(a)(b)...................... 500 --
PT Hanjaya Mandala Sampoerna Tbk...... 56,000 141,191
----------
141,191
----------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
MALAYSIA -- 12.32%
-------------------------------------
Berjaya Sports Toto Berhad............ 61,000 $ 131,631
Genting Berhad........................ 17,000 60,394
Johor Port Berhad..................... 204,000 89,652
Malakoff Berhad....................... 32,000 84,210
Malayan Banking Berhad................ 34,400 122,210
Perusahaan Otomobil Nasional Berhad... 52,000 101,262
Petronas Gas Berhad................... 28,000 65,579
Public Bank Berhad.................... 40,000 34,947
Public Bank Berhad -- Foreign
Registered.......................... 50,000 51,842
Sime Darby Berhad..................... 102,000 129,378
Sime UEP Properties Berhad............ 68,000 95,736
Telekom Malaysia Berhad............... 35,000 135,394
----------
1,102,235
----------
NEW ZEALAND -- 3.35%
-------------------------------------
Fletcher Challenge Paper.............. 34,000 23,760
Telecom Corporation of New Zealand
Limited............................. 19,200 90,115
Tourism Holdings Limited.............. 99,237 185,273
----------
299,148
----------
PHILIPPINES -- 3.73%
-------------------------------------
Alaska Milk Corporation(a)............ 382,000 27,489
Benpres Holdings Corporation Sponsored
GDR(a).............................. 9,600 29,400
Manila Electric Company -- B Shares... 16,000 45,658
Metropolitan Bank & Trust Company..... 7,920 56,992
Music Corporation(a).................. 242,000 31,826
Philippine Long Distance Telephone
Co.................................. 1,972 50,156
Southeast Asia Cement Holdings,
Inc.(a)............................. 2,267,000 26,439
Universal Robina Corporation.......... 369,500 66,015
----------
333,975
----------
SINGAPORE -- 15.18%
-------------------------------------
Asia Pulp & Paper Company Ltd. --
Sponsored ADR(a) (with 2,560
warrants(a))........................ 12,800 103,200
DBS Group Holdings Limited............ 9,943 162,931
DBS Land Ltd.......................... 73,000 143,721
Elec & Eltek International Co. Ltd.... 41,050 133,002
Fraser & Neave Ltd. Ordinary.......... 17,000 62,755
Overseas Union Bank Ltd............... 52,148 305,187
Singapore Airlines Limited............ 17,000 192,857
Singapore Press Holdings Ltd.......... 10,000 216,686
United Overseas Bank Ltd.............. 4,224 37,270
----------
1,357,609
----------
SOUTH KOREA -- 7.64%
-------------------------------------
Hyundai Motor Company Ltd............. 5,983 95,069
Korea Electric Power Corp............. 2,000 62,147
Pohang Iron & Steel Company Ltd....... 1,000 116,967
Samsung Electronics Co. Sponsored
GDR................................. 2,970 363,083
Samsung Fire & Marine Insurance (with
280 rights(a))...................... 1,370 46,029
----------
683,295
----------
</TABLE>
<PAGE> 83
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
5
<TABLE>
<CAPTION>
--------------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
THAILAND -- 2.60%
-------------------------------------
Advanced Info Service Public Company
Limited -- Foreign Registered....... 4,600 $ 77,370
Bangkok Bank Public Company Ltd --
Foreign Registered.................. 23,800 60,173
Siam Cement Public Company Limited --
Foreign Registered.................. 1,200 39,984
Thai Farmers Bank Public Company
Limited -- Foreign Registered....... 33,000 55,329
----------
232,856
----------
TOTAL INVESTMENTS -- 85.08%
(Cost -- $4,872,103)(c)............. 7,610,876
OTHER ASSETS, LESS LIABILITIES --
14.92%.............................. 1,334,239
----------
NET ASSETS -- 100%.................... $8,945,115
==========
<CAPTION>
--------------------------------------------------------------
--------------------------------------------------------------
<S> <C> <C>
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
(a) Non-income producing security
(b) Securities valued in good faith by the
Valuation Committee of the Board of Trustees.
See Note 1 to the Financial Statements.
(c) Cost is approximately the same for Federal
income tax purposes.
OTHER INFORMATION:
At December 31, 1999, net unrealized appreciation based on
cost for financial statement and Federal income tax purposes
is as follows:
Gross unrealized appreciation................ $2,969,394
Gross unrealized depreciation................ (230,621)
----------
Net unrealized appreciation.............. $2,738,773
==========
Purchases and sales of securities other than short-term
obligations aggregated $1,512,352 and $1,650,225,
respectively, for the period ended December 31, 1999.
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 84
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--------------------------------------------------------------------------------
IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
6
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $4,872,103)....... $ 7,610,876
Cash........................................................ 1,343,045
Receivables
Fund shares sold.......................................... 7,319
Dividends and interest.................................... 11,712
Manager for expense reimbursement......................... 15,237
Deferred organization expenses.............................. 19,005
Other assets................................................ 5,599
-----------
Total assets.............................................. 9,012,793
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 32,509
Management fee............................................ 7,401
12b-1 service and distribution fees....................... 6,037
Other payables to related parties......................... 4,581
Accrued expenses............................................ 17,150
-----------
Total liabilities......................................... 67,678
-----------
NET ASSETS.................................................. $ 8,945,115
===========
CLASS A
Net asset value and redemption price per share
($2,014,928/252,048 shares outstanding)................... $ 7.99
===========
Maximum offering price per share ($7.99 x 100/94.25)*....... $ 8.48
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($3,763,103/475,660 shares outstanding)............. $ 7.91
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($3,031,135/381,540 shares outstanding)............. $ 7.94
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($135,949/17,060 shares outstanding)................ $ 7.97
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 8,049,737
Accumulated net realized loss on investments and foreign
currency transactions................................... (1,822,714)
Accumulated net investment loss........................... (20,722)
Net unrealized appreciation on investments and foreign
currency transactions................................... 2,738,814
-----------
NET ASSETS.................................................. $ 8,945,115
===========
</TABLE>
<TABLE>
<S> <C>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 85
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
7
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 159,880
Interest.................................................. 23,455
----------
183,335
----------
EXPENSES
Management fee............................................ $72,724
Transfer agent............................................ 22,560
Administrative services fee............................... 7,272
Custodian fees............................................ 44,117
Blue Sky fees............................................. 31,072
Auditing and accounting fees.............................. 20,233
Shareholder reports....................................... 9,055
Amortization of organization expenses..................... 9,826
Fund accounting........................................... 20,305
Trustees' fees............................................ 9,240
12b-1 service and distribution fees....................... 58,969
Legal..................................................... 26,577
Other..................................................... 1,362
----------
333,312
Expenses reimbursed by Manager............................ (119,280)
Fees paid indirectly...................................... (13,251)
----------
Net expenses.......................................... 200,781
----------
NET INVESTMENT LOSS......................................... (17,446)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain on investments.......................... 311,404
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 2,429,520
----------
Net gain on investment transactions................... 2,740,924
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $2,723,478
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 86
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IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
8
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (17,446) $ (115)
Net realized gain (loss) on investments and foreign
currency transactions................................... 311,404 (2,099,161)
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 2,429,520 1,157,220
---------- -----------
Net increase (decrease) resulting from operations..... 2,723,478 (942,056)
---------- -----------
Class A distributions
Dividends
From net investment income.............................. (4,345) --
In excess of net investment income...................... -- (8,845)
Distributions from capital gains.......................... (14,864) (1,561)
---------- -----------
Total distributions to Class A shareholders........... (19,209) (10,406)
---------- -----------
Class B distributions
Dividends in excess of net investment income.............. -- (3,991)
Distributions from capital gains.......................... (15,357) (704)
---------- -----------
Total distributions to Class B shareholders........... (15,357) (4,695)
---------- -----------
Class C distributions
Dividends in excess of net investment income.............. -- (2,487)
Distributions from capital gains.......................... (12,237) (439)
---------- -----------
Total distributions to Class C shareholders........... (12,237) (2,926)
---------- -----------
Advisor Class distributions
Dividends from net investment income...................... (791) --
Distributions from capital gains.......................... (934) --
---------- -----------
Total distributions to Advisor Class shareholders..... (1,725) --
---------- -----------
Fund share transactions (Note 5)
Class A................................................... (107,980) 1,414,019
Class B................................................... 529,602 1,367,392
Class C................................................... 281,207 1,239,743
Advisor Class............................................. 122,006 --
---------- -----------
Net increase resulting from Fund share transactions... 824,835 4,021,154
---------- -----------
TOTAL INCREASE IN NET ASSETS................................ 3,499,785 3,061,071
NET ASSETS
Beginning of period....................................... 5,445,330 2,384,259
---------- -----------
END OF PERIOD............................................. $8,945,115 $ 5,445,330
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ -- $ 9,686
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 87
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
9
<TABLE>
<CAPTION>
for the year ended
CLASS A December 31,
---------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA 1999 1998 1997
-------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 5.56 $ 6.01 $ 10.00
--------------------------------
Income (loss) from investment operations
Net investment income(a).................................. .02 .03 .02
Net gains or loss on securities (both realized and
unrealized)............................................. 2.49 (.44) (3.98)
--------------------------------
Total from investment operations.......................... 2.51 (.41) (3.96)
--------------------------------
Less distributions
Dividends
From net investment income.............................. .02 -- .01
In excess of net investment income...................... -- .03 .02
Distributions from capital gains.......................... .06 .01 --
--------------------------------
Total distributions..................................... .08 .04 .03
--------------------------------
Net asset value, end of period.............................. $ 7.99 $ 5.56 $ 6.01
================================
Total return (%)(b)......................................... 45.10 (6.86) (39.58)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 2,015 $ 1,393 $ 692
Ratio of expenses to average net assets(c)
With expense reimbursement (%)............................ 2.39 2.77 2.11
Without expense reimbursement (%)......................... 4.03 6.15 10.17
Ratio of net investment income to average net assets
(%)(a).................................................... .31 .53 .63
Portfolio turnover rate (%)................................. 24 86 1
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
for the year ended
CLASS B December 31,
---------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA 1999 1998 1997
-------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 5.53 $ 5.99 $ 10.00
--------------------------------
Income (loss) from investment operations
Net investment loss(a).................................... (.03) (.01) --
Net gains or loss on securities (both realized and
unrealized)............................................. 2.44 (.44) (4.00)
--------------------------------
Total from investment operations.......................... 2.41 (.45) (4.00)
--------------------------------
Less distributions
Dividends in excess of net investment income.............. -- .01 .01
Distributions from capital gains.......................... .03 -- --
--------------------------------
Total distributions..................................... .03 .01 .01
--------------------------------
Net asset value, end of period.............................. $ 7.91 $ 5.53 $ 5.99
================================
Total return (%)(b)......................................... 43.64 (7.48) (39.96)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 3,763 $ 2,197 $ 929
Ratio of expenses to average net assets(c)
With expense reimbursement (%)............................ 3.17 3.65 2.86
Without expense reimbursement (%)......................... 4.81 7.03 10.92
Ratio of net investment loss to average net assets (%)(a)... (.46) (.35) (.12)
Portfolio turnover rate (%)................................. 24 86 1
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 88
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[IVY LEAF LOGO]
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
10
<TABLE>
<CAPTION>
for the year ended
CLASS C December 31,
---------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA 1999 1998 1997
-------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 5.54 $ 5.99 $ 10.00
--------------------------------
Income (loss) from investment operations
Net investment loss(a).................................... (.03) (.01) --
Net gains or loss on securities (both realized and
unrealized)............................................. 2.46 (.43) (3.99)
--------------------------------
Total from investment operations.......................... 2.43 (.44) (3.99)
--------------------------------
Less distributions
Dividends in excess of net investment income.............. -- .01 .02
Distributions from capital gains.......................... .03 -- --
--------------------------------
Total distributions..................................... .03 .01 .02
--------------------------------
Net asset value, end of period.............................. $ 7.94 $ 5.54 $ 5.99
================================
Total return (%)(b)......................................... 43.92 (7.37) (39.94)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 3,031 $ 1,855 $ 764
Ratio of expenses to average net assets(c)
With expense reimbursement (%)............................ 3.09 3.54 2.74
Without expense reimbursement (%)......................... 4.73 6.92 10.80
Ratio of net investment loss to average net assets (%)(a)... (.38) (.24) --
Portfolio turnover rate (%)................................. 24 86 1
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
for the period
July 1, 1999
(commencement)
ADVISOR CLASS to December 31,
-------------------------------------------------------------------------------------
SELECTED PER SHARE DATA 1999
-----------------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 7.76
-------------------
Income from investment operations
Net investment income(a).................................. .02
Net gains on securities (both realized and unrealized).... .30
-------------------
Total from investment operations.......................... .32
-------------------
Less distributions
Dividends from net investment income...................... .05
Distributions from capital gains.......................... .06
-------------------
Total distributions..................................... .11
-------------------
Net asset value, end of period.............................. $ 7.97
===================
Total return(%)(d).......................................... 4.14
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 136
Ratio of expenses to average net assets
With expense reimbursement(%)(e).......................... 2.02
Without expense reimbursement(%)(e)....................... 3.66
Ratio of net investment income to average net
assets(%)(a)(e)........................................... .69
Portfolio turnover rate(%).................................. 24
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(a) Net investment (b) Total return (c) From 1997 (d) Total return (e) Annualized
income (loss) is net does not reflect a through April 1999, represents aggregate
of expenses sales charge. total expenses total return and
reimbursed by include fees paid does not reflect a
Manager. indirectly, if any, sales charge.
through an offset
arrangement.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 89
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11
NOTES TO FINANCIAL STATEMENTS
Ivy Asia Pacific Fund (the "Fund"), is a diversified series of shares of Ivy
Fund. The shares of beneficial interest are assigned no par value and an
unlimited number of shares of Class A, Class B, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. Preparation of the
financial statements includes the use of management estimates. Actual results
could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock exchange, or
The Nasdaq Stock Market Inc. ("Nasdaq") system, are valued at the last quoted
sale price reported as of the close of regular trading on the exchange on which
the security is traded most extensively. If there were no sales on the exchange
the security is traded most extensively and the security is traded on more than
one exchange, or on one or more exchanges in the over-the-counter market, the
exchange reflecting the last quoted sale will be used. Otherwise, the security
is valued at the calculated mean between the last bid and asked price on the
exchange. Securities not traded on an exchange or Nasdaq, but traded in another
over-the-counter market are valued at the average between the current bid and
asked price in such markets. Short-term obligations and commercial paper are
valued at amortized cost, which approximates market. Debt securities (other than
short-term obligations and commercial paper) are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees
(the "Board"), which determines valuations based upon market transactions for
normal, institutional-size trading units of such securities. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board. As of December 31, 1999, the Fund's securities
valued by the Valuation Committee have no value and have been noted as such in
the Portfolio of Investments.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1999, the interest rate was 3.75%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable
to regulated investment companies under the Internal Revenue Code of 1986 (the
"Code"), as amended, and distribute all of its taxable income to its
shareholders. Therefore, no provision has been recorded for Federal income or
excise taxes.
The Fund has a net tax-basis capital loss carryover of approximately $1,804,000
as of December 31, 1999 which may be applied against any realized net taxable
gain of each succeeding fiscal year until fully utilized or until the expiration
date, whichever occurs first. The carryover expires in 2006.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable, are
translated at the closing daily rate of exchange; and (ii) purchases and sales
of investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Code Section 988 provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred prior to the effectiveness
of Statement of Position 98-5, "Reporting on the Costs of Start-up Activities",
by the Fund in connection with its organization have been deferred and are being
amortized on a straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
capital gain distributions are determined annually in accordance with Federal
tax regulations which may differ from generally accepted accounting principles.
These differences primarily relate to foreign denominated securities, certain
securities sold at a loss, and non-deductible organization expenses. As a
result, Net investment loss and Net realized gain on investments and foreign
currency transactions for a reporting period may differ significantly in amount
and character from
<PAGE> 90
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
12
distributions during such period. Accordingly, the Fund may make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
FEES PAID INDIRECTLY -- From January 1, 1999 through April 15, 1999, the Fund
had an arrangement with its custodian whereby a percentage of quarterly
cumulative credits resulting from cash balances on deposit with the custodian
are used to offset custody fees, including transaction and out-of-pocket
expenses. For the period from January 1, 1999 through April 15, 1999, custodian
fees were reduced by $13,251 under this arrangement.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund.
For its services, IMI receives a fee monthly at the annual rate of 1.00% of the
Fund's average net assets. Currently, IMI voluntarily limits the Fund's total
operating expenses (excluding 12b-1 fees and certain other expenses) to an
annual rate of 1.95% of its average net assets.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended December 31, 1999, the net amount of underwriting
discount retained by IMDI was $2,008.
Under Service and Distribution Plans, the Fund reimburses IMDI for service fee
payments made to brokers at an annual rate of .25% of its average net assets,
excluding Advisor Class. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $4,458,
$29,339, and $25,172 for Class A, Class B and Class C, respectively, are
reflected as 12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the
transfer and shareholder servicing agent for the Fund. For those services, the
Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $5,727, $10,115, $6,644 and $74, for Class A, Class B, Class C and
Advisor Class, respectively, are reflected as Transfer agent in the Statement of
Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in equity securities of companies in the Asia-Pacific
region. Therefore, the Fund is more susceptible to factors adversely affecting
securities within the Asia-Pacific region than is an equity fund that is not
concentrated in such securities to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C and Advisor Class were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 760,594 $ 4,417,001 587,033 $ 3,227,193
Issued on
reinvestment of
distributions....... 1,754 13,679 1,325 7,271
Repurchased.......... (760,739) (4,538,660) (453,035) (1,820,445)
-------- ----------- -------- -----------
Net (decrease)/
increase............ 1,609 $ (107,980) 135,323 $ 1,414,019
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 189,550 $ 1,317,798 367,268 $ 1,924,978
Issued on
reinvestment of
distributions....... 1,107 8,546 537 2,927
Repurchased.......... (112,554) (796,742) (125,329) (560,513)
-------- ----------- -------- -----------
Net increase......... 78,103 $ 529,602 242,476 $ 1,367,392
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 165,089 $ 1,098,147 355,153 $ 1,944,016
Issued on
reinvestment of
distributions....... 1,207 9,364 432 2,364
Repurchased.......... (119,605) (826,304) (148,169) (706,637)
-------- ----------- -------- -----------
Net increase......... 46,691 $ 281,207 207,416 $ 1,239,743
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 1, 1999
(COMMENCEMENT)
TO DECEMBER 31,
1999
---------------------------------------------
ADVISOR CLASS SHARES AMOUNT
---------------------------------------------
<S> <C> <C> <C> <C>
Sold................. 78,562 $ 577,741
Issued on
reinvestment of
distributions....... 222 1,725
Repurchased.......... (61,724) (457,460)
-------- -----------
Net increase......... 17,060 $ 122,006
======== ===========
</TABLE>
<PAGE> 91
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
IVY ASIA PACIFIC FUND (THE "FUND"):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with 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 statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities owned at
December 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 4, 2000
<PAGE> 92
[IVY LEAF LOGO]
--------------------------------------------------------------------------------
IVY ASIA PACIFIC FUND
--------------------------------------------------------------------------------
14
SHAREHOLDER MEETING RESULTS
(UNAUDITED)
On September 30, 1999, a special shareholder meeting (the "Meeting") was held at
the offices of Mackenzie Investment Management Inc., Boca Raton, Florida, for
the following purposes (and with the following results):
PROPOSAL 1: With respect to Ivy Fund, to elect Trustees.
<TABLE>
<CAPTION>
---------------------------------------------------
NOMINEE: FOR: WITHHOLD:
---------------------------------------------------
<S> <C> <C>
James W. Broadfoot............ 556,770 14,409
Keith J. Carlson.............. 556,770 14,409
Stanley Channick.............. 555,802 15,377
Roy J. Glauber................ 555,802 15,377
Edward M. Tighe............... 556,770 14,409
</TABLE>
The other Trustees of Ivy Fund previously elected by shareholders whose term of
office continued after the meeting were John S. Anderegg, Jr., Paul H. Broyhill,
Frank W. DeFriece, Jr., Joseph G. Rosenthal, Richard N. Silverman and J. Brendan
Swan.
PROPOSAL 2: With respect to the Fund, to ratify or reject the action of the
Board of Trustees in selecting PricewaterhouseCoopers LLP as independent
accountants for the fiscal year ending December 31, 1999.
<TABLE>
<CAPTION>
-----------------------------
FOR: AGAINST: ABSTAIN:
-----------------------------
<S> <C> <C>
540,106 2,473 28,600
</TABLE>
PROPOSAL 3: With respect to the Fund, to approve or disapprove the revision of
certain fundamental investment policies.
3.1 DIVERSIFICATION:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
458,332 8,242 33,201 71,404
</TABLE>
3.2 BORROWING:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
451,559 14,048 34,168 71,404
</TABLE>
3.3 SENIOR SECURITIES:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
457,259 9,087 33,429 71,404
</TABLE>
3.4 UNDERWRITING:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
461,171 6,726 31,878 71,404
</TABLE>
3.5 REAL ESTATE:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
460,581 6,286 32,908 71,404
</TABLE>
3.6 COMMODITIES:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
453,930 12,938 32,907 71,404
</TABLE>
3.7 LOANS:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
448,729 18,780 32,266 71,404
</TABLE>
3.8 CONCENTRATION:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
462,329 5,569 31,877 71,404
</TABLE>
3.9 OTHER POLICIES:
<TABLE>
<CAPTION>
-------------------------------------------
BROKER NON-
FOR: AGAINST: ABSTAIN: VOTES:*
-------------------------------------------
<S> <C> <C> <C>
455,300 14,681 29,794 71,404
</TABLE>
---------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner (or other persons entitled to vote) nor has discretionary
power to vote on a particular matter.
<PAGE> 93
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
15
<PAGE> 94
02IAPF123199
<PAGE> 95
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following tables set forth the unaudited Pro Forma Combined
Portfolio of Investments as of June 30, 2000, Pro Forma Combined Statement of
Assets and Liabilities as of June 30, 2000, and Pro Forma Combined Statement of
Operations for the six months ended June 30, 2000, and give effect to the
proposed merger of Ivy Asia Pacific Fund into Ivy Pacific Opportunities Fund.
The merger provides for the transfer of all or substantially all of the assets
of Ivy Asia Pacific Fund to Ivy Pacific Opportunities Fund. Specifically,
current Class A, Class B, Class C and Advisor Class shareholders of Ivy Asia
Pacific Fund will receive Class A, Class B, Class C and Advisor Class shares,
respectively, of Ivy Pacific Opportunities Fund. As a result of the transaction
Ivy Asia Pacific Fund will be liquidated.
<PAGE> 96
IVY PACIFIC OPPORTUNITIES FUND AND IVY ASIA PACIFIC FUND REORGANIZATION
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS (UNAUDITED)
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
IVY PACIFIC OPPORTUNITIES FUND IVY ASIA PACIFIC FUND PRO FORMA COMBINED
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Australia - 0.5%
National Australia Bank Ltd. $ 4,099 $ 68,660 4,099 $ 68,660
Westpac Banking Corp. Ltd. 9,000 65,116 9,000 65,116
-- ---------- ----------
133,776 133,776
-- ---------- ----------
CHINA - 11.5%
China Unicom Limited (a) 366,000 777,072 176,000 373,674 542,000 1,150,746
Nanjing Panda Electronics Co., Ltd. (a) 1,222,000 438,946 362,000 130,032 1,584,000 568,978
Qingling Motors Company - H Shares 3,614,000 417,266 758,000 87,517 4,372,000 504,783
Shanghai Worldbest Co., Ltd. 1,246,800 381,521 1,246,800 381,521
Shenzhen Konka Electronics Group Ltd.
- Class B 312,000 321,405 312,000 321,405
----------- ---------- ----------
2,336,210 591,223 2,927,433
----------- ---------- ----------
HONG KONG - 54.3%
Asia Satellite Telecommunications Holdings Ltd. 4,000 137,000 4,000 137,000
Asia Satellite Telecommunications Holdings
Ltd. ADR 100,000 341,884 56,500 193,165 156,500 535,049
Automated Systems Holdings Ltd. 560,000 287,362 192,000 98,524 752,000 385,886
Cathay Pacific Airways 283,000 524,610 121,000 224,303 404,000 748,913
Cheung Kong Holdings Ltd. 100,000 1,106,474 26,000 287,683 126,000 1,394,157
China Southern Airlines Company Limited 1,458,000 347,899 1,458,000 347,899
China Telecom (Hong Kong) Limited (a) 110,000 970,169 48,000 423,347 158,000 1,393,516
Citic Pacific Ltd. 150,000 785,115 48,000 251,237 198,000 1,036,352
Cosco Pacific Limited 326,000 257,202 326,000 257,202
Dah Sing Financial Group 112,000 451,159 52,000 209,467 164,000 660,626
Guangdong Kelon Electrical Holdings Co.
Ltd. - H Shares 523,000 283,472 55,000 29,811 578,000 313,283
Hang Seng Bank 20,900 198,408 20,900 198,408
Hong Kong & China Gas Company Ltd. 188,179 211,233 188,179 211,233
HSBC Holdings plc 75,600 863,165 16,800 191,814 92,400 1,054,979
Hutchison Whampoa Limited 78,000 980,625 12,000 150,865 90,000 1,131,490
Li & Fung Ltd. 199,600 998,636 199,600 998,636
Orient Overseas International Ltd. 353,000 177,745 93,000 46,828 446,000 224,573
Sun Hung Kai Properties Ltd. 64,800 465,527 12,000 86,209 76,800 551,736
Swire Pacific Ltd. 65,500 383,167 28,000 163,797 93,500 546,964
VTech Holdings Limited 108,000 408,722 108,000 408,722
Wharf Holdings Ltd. 278,000 497,509 42,810 76,613 320,810 574,122
Wing Hang Bank Limited 205,000 510,197 74,000 184,169 279,000 694,366
----------- ---------- ----------
11,187,280 2,617,832 13,805,112
----------- ---------- ----------
MALAYSIA - 2.4%
Berjaya Sports Toto Berhad 61,000 99,528 61,000 99,528
Genting Berhad 17,000 62,633 17,000 62,633
Malayan Banking Berhad 34,400 139,413 34,400 139,413
Public Bank Berhad - Foreign Registered 50,000 50,001 50,000 50,001
Public Bank Berhad 40,000 36,843 40,000 36,843
Sime Darby Berhad 102,000 130,992 102,000 130,992
Sime UEP Properties Berhad 68,000 91,265 68,000 91,265
---------- ----------
610,675 610,675
---------- ----------
NEW ZEALAND - 1.0%
Fletcher Challenge Energy 21,000 68,707 21,000 68,707
Telecom Corporation of New Zealand Limited 22,253 78,044 22,253 78,044
Tourism Holdings Limited 98,591 113,710 98,591 113,710
---------- ----------
260,461 260,461
---------- ----------
PHILIPPINES - 0.2%
Benpres Holdings Corporation Sponsored GDR (a) 8,000 15,500 8,000 15,500
Manila Electric Company - B Shares 19,200 28,204 19,200 28,204
Universal Robina Corporation 67,500 8,276 67,500 8,276
---------- ----------
51,980 51,980
---------- ----------
SINGAPORE 3.2%
DBS Group Holdings Limited 9,943 127,668 9,943 127,668
DBS Land Ltd. 73,000 94,576 73,000 94,576
Overseas Union Bank Ltd. 52,148 202,080 52,148 202,080
Singapore Airlines Limited 17,000 168,134 17,000 168,134
Singapore Press Holdings Ltd. 14,000 218,626 14,000 218,626
---------- ----------
811,084 811,084
---------- ----------
SOUTH KOREA - 15.8%
Hyundai Motor Company Ltd. 14,181 181,875 5,983 76,733 20,164 258,608
Korea Electric Power Corp. 2,000 62,063 2,000 62,063
Korea Telecom Corporation 2,500 220,182 2,500 220,182
Pohang Iron & Steel Company Ltd. 2,000 176,475 1,000 88,238 3,000 264,713
Samsung Electronics 2,564 848,544 2,564 848,544
Samsung Electronics Co. Sponsored GDR 2,970 581,377 2,970 581,377
Samsung Fire & Marine Insurance 1,749 48,627 1,749 48,627
Shinhan Bank 26,840 252,756 24,400 229,778 51,240 482,534
SK Telecom Co., Ltd. 2,981 975,853 814 266,469 3,795 1,242,322
----------- ---------- ----------
2,435,503 1,573,467 4,008,970
----------- ---------- ----------
TAIWAN - 10.9%
Asustek Computer Inc. 26,520 218,711 26,520 218,711
Compal Electronics Inc. 172,998 424,084 145,900 357,656 318,898 781,740
Hon Hai Precision Industry Co., Ltd. 49,000 442,287 40,000 361,051 89,000 803,338
Taiwan Semiconductor Manufacturing Company 104,064 493,306 99,000 469,300 203,064 962,606
----------- ---------- ----------
1,359,677 1,406,718 2,766,395
----------- ---------- ----------
THAILAND - 0.2%
Advanced Info Service Public Company Limited
- Foreign Registered (a) 4,600 57,231 4,600 57,231
=========== ========== ==========
TOTAL INVESTMENTS $17,318,670 $8,114,447 $25,433,117
=========== ========== ==========
(Ivy Pacific Opportunities Fund cost - $13,207,493)
(Ivy Asia Pacific Fund cost - $6,625,127)
(Proforma combined cost - $19,832,620)
ADR - American Depository Receipt
GDR - Global Depository Receipt
(a) Non-income producing security
</TABLE>
See accompanying notes to the Pro Forma Financial Statements.
<PAGE> 97
IVY PACIFIC OPPORTUNITIES FUND AND IVY ASIA PACIFIC FUND REORGANIZATION
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
IVY PACIFIC IVY ASIA PACIFIC PRO FORMA
OPPORTUNITIES FUND FUND ADJUSTMENTS COMBINED
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments $17,318,670 $8,114,447 $25,433,117
Cash 645,819 173,677 819,496
Receivables --
Investments sold 35,305 6,469 41,774
Fund shares sold 7,148 5,931 13,079
Dividends and interest 84,208 18,107 102,315
Manager for expense reimbursement 22,352 23,876 14,106 (a) 60,334
Deferred organization expenses -- 14,106 (14,106)(a) --
Other assets 10,129 14,125 24,254
------------------------------------------------------------
Total assets 18,123,631 8,370,738 -- 26,494,369
------------------------------------------------------------
Payables
Fund shares repurchased -- 26,468 26,468
Management fee 15,157 6,946 22,103
12b-1 service and distribution fees 1,889 1,194 3,083
Other payables to related parties 11,132 4,374 15,506
Accrued expenses 27,736 29,282 57,018
------------------------------------------------------------
Total liabilities 55,914 68,264 -- 124,178
------------------------------------------------------------
Net assets $18,067,717 $8,302,474 $ -- $26,370,191
============================================================
Class A
Net assets, at value $10,841,779 $2,749,276 $13,591,055
Shares outstanding 1,175,768 384,368 1,473,954
Net asset value and redemption price per share $ 9.22 $ 7.15 $ 9.22
Maximum offering price per share
(net asset value x 100/94.25) (a) $ 9.78 $ 7.59 $ 9.78
Class B
Net assets, at value $ 6,424,669 $3,250,875 $ 9,675,544
Shares outstanding 707,616 461,235 1,065,642
Net asset value, offering price and redemption price per share (b) $ 9.08 $ 7.05 $ 9.08
Class C
Net assets, at value $ 737,041 $2,300,597 $ 3,037,638
Shares outstanding 80,950 324,896 333,763
Net asset value, offering price and redemption price per share (c) $ 9.10 $ 7.08 $ 9.10
Advisor Class
Net assets, at value $ 64,228 $ 1,726 $ 65,954
Shares outstanding 7,039 244 7,228
Net asset value, offering price and redemption price per share $ 9.12 $ 7.07 $ 9.12
</TABLE>
(a) On sales of more than $50,000 the offering price is reduced.
(b) Subject to a maximum deferred sales charge of 5%.
(c) Subject to a maximum deferred sales charge of 1%.
See accompanying notes to the Pro Forma Financial Statements.
<PAGE> 98
IVY PACIFIC OPPORTUNITIES FUND AND IVY ASIA PACIFIC FUND REORGANIZATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
IVY PACIFIC IVY ASIA PACIFIC PRO FORMA
OPPORTUNITIES FUND FUND ADJUSTMENTS COMBINED
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend income $ 348,443 $ 117,250 $ 465,693
Interest income 24,720 15,152 -- 39,872
----------------------------------------------------------------------------
Investment income 373,163 132,402 -- 505,565
----------------------------------------------------------------------------
Management fee 94,662 43,657 138,319
Transfer agent 45,935 13,036 58,971
Administrative services fee 9,466 4,366 13,832
Custodian fees 33,451 37,459 (12,498)(b) 58,412
Blue Sky fees 15,613 15,668 (15,668)(c) 15,613
Auditing and accounting fees 13,084 11,081 (11,081)(d) 13,084
Shareholder reports 9,805 5,384 (2,000)(e) 13,189
Amortization of organization expenses -- 4,899 (4,899)(f) --
Fund accounting 18,556 10,243 (7,500)(g) 21,299
Trustees' fees 2,976 2,732 (2,732)(h) 2,976
12b-1 service & distribution fees 51,594 33,390 84,984
Legal 13,881 13,847 (13,847)(i) 13,881
Other 1,862 1,239 3,101
----------------------------------------------------------------------------
Total expenses 310,885 197,001 (70,225) 437,661
Expenses reimbursed by Manager (74,712) (78,485) 70,225 (j) (82,972)
----------------------------------------------------------------------------
Net expenses 236,173 118,516 -- 354,689
----------------------------------------------------------------------------
Net investment income $ 136,990 $ 13,886 $ -- $ 150,876
============================================================================
</TABLE>
See accompanying notes to the Pro Forma Financial Statements.
<PAGE> 99
Ivy Pacific Opportunities Fund/Ivy Asia Pacific Fund
Notes to Pro Forma Financial Statements (unaudited)
June 30, 2000
1. BASIS OF COMBINATION
The unaudited Pro Forma Combined Portfolio of Investments, Pro Forma
Combined Statement of Assets and Liabilities and Pro Forma Combined Statement of
Operations give effect to the proposed merger of Ivy Asia Pacific Fund into Ivy
Pacific Opportunities Fund. The proposed merger will be accounted for by the
method of accounting for tax free mergers of investment companies (sometimes
referred to as the pooling-of-interest basis). The merger provides for the
transfer of all or substantially all of the assets of Ivy Asia Pacific Fund to
Ivy Pacific Opportunities Fund. Specifically, current Class A, Class B, Class C
and Advisor Class shareholders of Ivy Asia Pacific Fund will receive Class A,
Class B, Class C and Advisor Class shares, respectively, of Ivy Pacific
Opportunities Fund. As a result of the transaction, Ivy Asia Pacific Fund will
be liquidated.
The pro forma combined statements should be read in conjunction with
the historical financial statements of the constituent fund and the notes
thereto incorporated by reference in the Statement of Additional Information.
Ivy Pacific Opportunities Fund and Ivy Asia Pacific Fund are both,
open-end, management investment companies registered under the Investment
Company Act of 1940, as amended.
PRO FORMA ADJUSTMENTS:
The Pro Forma adjustments below reflect the impact of the merger between Ivy
Pacific Opportunities Fund and Ivy Asia Pacific Fund.
(a) To record receivable for capitalized organization expenses which will be
written off by Ivy Asia Pacific Fund and subsequently reimbursed by the
Manager.
(b) To remove duplicate custody fees.
(c) To remove duplicate Blue Sky fees.
(d) To remove duplicate auditing and accounting fees.
(e) To remove duplicate printing cost related to typesetting.
(f) To remove Ivy Asia Pacific Fund's amortization of organizational expenses.
(g) To remove duplicate monthly fund accounting fee.
(h) To remove duplicate trustees' fees.
(i) To remove duplicate legal fees.
(j) To remove expense reimbursement no longer required due to elimination of
duplicate expenses.
<PAGE> 100
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by Ivy Pacific Opportunities Fund/Ivy Asia Pacific Fund in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles. Preparation of the financial
statements includes the use of management estimates. Actual results could differ
from those estimates.
SECURITY VALUATION - Securities traded on a U.S. or foreign stock
exchange, or The Nasdaq Stock Market Inc. ("Nasdaq") system, are valued at the
last quoted sale price reported as of the close of regular trading on the
exchange on which the security is traded most extensively. If there were no
sales on the exchange on which the security is traded most extensively and the
security is traded on more than one exchange, or on one or more exchanges in the
over-the-counter market, the exchange reflecting the last quoted sale will be
used. Otherwise, the security is valued at the calculated mean between the last
bid and asked price on the exchange on which the security is traded most
extensively. Securities not traded on an exchange or Nasdaq, but traded in
another over-the-counter market are valued at the average between the current
bid and asked price in such markets. Short-term obligations and commercial paper
are valued at amortized cost, which approximates market. Debt securities (other
than short-term obligations and commercial paper) are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees
(the "Board"), which determines valuations based upon market transactions for
normal, institutional-size trading units of such securities, or on the basis of
dealer quotes. All other securities are valued at their fair value as determined
in good faith by the Valuation Committee of the Board.
SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
FEDERAL INCOME TAXES - Ivy Pacific Opportunities Fund/Ivy Asia
Pacific Fund intends to qualify for tax treatment applicable to regulated
investment companies under the Internal Revenue Code of 1986 as amended, (the
"Code"), and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment
income and net realized capital gain, if any, are declared in December.
