EX-17.(D)(IV)IVYGROW 17 exh17div_ivygrowthbondar.htm IVY GROWTH AND BOND ANNUAL REPORT Exhibit 17(d)(iv) IVY FUNDS [PICTURE OF GLOBE IN HANDS] 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 and current fund performance information. ANNUAL REPORT DECEMBER 31, 2002 IVY CUNDILL GLOBAL VALUE FUND IVY DEVELOPING MARKETS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL FUND IVY INTERNATIONAL SMALL COMPANIES FUND IVY INTERNATIONAL VALUE FUND IVY PACIFIC OPPORTUNITIES FUND IVY GROWTH FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND IVY BOND FUND IVY MONEY MARKET FUND [IVY FUNDS LOGO] TABLE OF CONTENTS Letter from the President ........................................... 1 Management's Discussion and Analysis WORLDWIDE FUNDS Ivy Cundill Global Value Fund ......................... 2 Ivy Developing Markets Fund ........................... 4 Ivy European Opportunities Fund ....................... 6 Ivy Global Fund ....................................... 8 Ivy Global Natural Resources Fund ..................... 10 Ivy Global Science & Technology Fund .................. 12 Ivy International Fund ................................ 14 Ivy International Small Companies Fund ................ 16 Ivy International Value Fund .......................... 18 Ivy Pacific Opportunities Fund ........................ 20 DOMESTIC FUNDS Ivy Growth Fund ....................................... 22 Ivy US Blue Chip Fund ................................. 24 Ivy US Emerging Growth Fund ........................... 26 FIXED INCOME FUNDS Ivy Bond Fund ......................................... 28 Ivy Money Market Fund ................................. 30 Schedules of Investments ............................................. 32 Statements of Assets and Liabilities ................................. 54 Statements of Operations ............................................. 58 Statements of Changes in Net Assets .................................. 62 Financial Highlights ................................................. 68 Notes to Financial Statements ........................................ 96 January 1, 2003 Dear Shareholder, (PHOTO) Henry J.Herrmann "Ultimately, we believe that it is essential for serious investors to maintain a long-term perspective and a focus on financial goals. Remember, a financial strategy that is appropriate for you is appropriate regardless of inevitable market changes." As you no doubt have heard, Waddell & Reed Ivy Investment Company, a subsidiary of Waddell & Reed Financial, Inc., became manager and advisor to the Ivy Funds in December 2002.(*) As president and chief investment officer of Waddell & Reed Ivy Investment Company, I want to personally let you know that we are enthusiastic about our new relationship, and I think there is strong reason for you to be pleased as well. Waddell & Reed has been in the investment management business since 1937 and has garnered a reputation as one of the strongest, most fundamentally focused firms in the industry. We pledge to bring the full resources of our renowned investment management team to bear on the Ivy Funds going forward. Enclosed is our report on your Fund's operations for the 12 months ended December 31, 2002. While the last 12 months brought a wave of geopolitical turmoil and corporate accounting scandals that served to dash investor confidence for most of the year, economic news did turn more positive during the period. The U.S. economy, in fact, has been quite resilient throughout 2002, after enduring many challenges. The Federal Reserve reduced short-term interest rates in November to 1.25 percent, the lowest level in many years. By December 31, we recognized numerous factors that may point to better economic growth prospects in the future. Consumer spending continues to be the underlying support mechanism, while inflation remains tame and personal income has increased consistently. With meager inflation, low interest rates, manageable debt burdens and rising personal income, we expect the economy to steer clear of the "double dip" recession that has been predicted by some economists. While we do expect equity market volatility to continue, the underlying trends lead us to believe that the prospects for stocks are positive. We anticipate market support from tax relief and the possible elimination of the double taxation of dividends. While we do not expect returns similar to those experienced in the late 1990s, we believe the equity markets have the potential for positive returns in 2003. At December 31, virtually all of the primary equity indexes had shown negative returns, although a slight rally in the fourth quarter did moderate the declines slightly. For the last 12 months, the Dow Jones Industrial Average declined 14.94 percent. The other two major indexes suffered even more, with the S&P 500 Index declining 22.10 percent over the last 12 months, and the NASDAQ Composite Index declining 31.53 percent over the period. In contrast to stocks, bonds did much better during the last 12 months, as evidenced by the Salomon Brothers Broad Investment Grade Index's increase of 10.09 percent for the period. Skepticism surrounding corporate accounting, along with geopolitical uncertainty, has brought out some risk aversion among investors, driving them toward the more conservative fixed income securities. Bond performance over the period also has been aided by low and declining inflation rates and an accommodative Federal Reserve. The very nature of financial markets is one of fluctuation, of bulls and bears. While ongoing change can be disconcerting, we believe that the best way to approach a fluctuating market is to develop and maintain a diversified portfolio. From our experience, those who adhere to a structured and consistent investment program over time take advantage of opportunities presented by the market's periodic downdrafts. Ultimately, we believe that it is essential for serious investors to maintain a long-term perspective and a focus on financial goals. We believe that it remains important for all investors to review their investment asset allocation on a regular basis to ensure that it continues to adhere to individual risk tolerance and is adaptable to market changes. Remember, a financial strategy that is appropriate for you is appropriate regardless of inevitable market changes. Thank you for your investment in the Ivy Funds. Respectfully, /s/ Henry J. Herrmann --------------------- Henry J. Herrmann President (*)With the exception of Ivy Global Natural Resources Fund, which is advised by Mackenzie Financial Corporation. IVY CUNDILL GLOBAL VALUE FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH. (PHOTO) Ivy Cundill Global Value Fund is sub-advised by Peter Cundill & Associates, Inc. The following is an interview with Peter Cundill, management team leader of the Fund. LIPPER CATEGORY Global "As always, our strategy will consist of bottom-up, individual stock selection using the `deep value' style of investing based on the principles of Benjamin Graham, the `father of value investing.' This strategy involves seeking out companies that we believe are trading below their intrinsic value." Q: PETER, HOW DID IVY CUNDILL GLOBAL VALUE FUND PERFORM IN 2002? A: For 2002, Ivy Cundill Global Value Fund returned -17.22%, including the impact of the maximum sales charge, and -12.17% without the sales charge. The Fund outperformed its benchmark, the MSCI World Index, which returned -19.89%, and its peer group (as measured by the Lipper Global Funds average), which returned -19.53%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Global markets were extremely volatile in 2002. Geopolitical concerns, corporate accounting scandals and sluggish economic growth worldwide caused the MSCI World Index, the most common indicator of global market performance, to show its worst annual decline in quite some time. The Ivy Cundill Global Value Fund also had a disappointing year. Despite a negative return, however, the Fund outperformed its index and peer group on a relative basis. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: North American holdings were the bright spot for the Fund in 2002. Exposure to North America remained consistent throughout the year, and the portfolio's positions held up well despite the economic slowdown. During the period, we were fully hedged on international currency exposure. As a result of foreign currency appreciation, the hedging had a negative effect on performance. In addition, holdings in Asia ex-Japan were weak in comparison with its respective regional markets and also had a negative effect. For most of 2002, the Fund's Japanese holdings limited the downside with strong performance. Unfortunately, the fourth quarter was not kind to the Japanese markets. Market sentiment deteriorated rapidly as fear of a hard landing from banking reform took hold. The Japanese market was hitting 20-year lows, and sentiment and valuations were rivaling 1998 and 1995 trough levels. Despite the "margin of safety" (the difference between the underlying value of the company and the price we are paying for it) and growing business values in the Fund's Japanese holdings, they were not spared in the sell-off. These declines negatively impacted performance toward the end of the year. Q: WHAT CHANGES WERE MADE? A: During the year, we strove to improve the quality of the portfolio by switching out of names that we believed no longer offered good value into stocks that we felt offered more attractive valuations and growth prospects. As investors rushed for the exits from Japan during the fourth quarter, for example, we took the opportunity to upgrade the Fund's Japanese holdings. We took advantage of Shiseido (cosmetics manufacturer) and Fast Retailing appreciating to our measure of fair value by fully divesting the Fund of these positions. We redeployed these funds into positions such as Aiful (consumer finance), Asatsu-DK (advertising agency) and existing positions. In Asia ex-Japan, we also took advantage of market weakness to upgrade the quality of the portfolio's holdings and buy more of our existing holdings. In North America, weak stock market sentiment gave us the opportunity to replace what we saw as fairly valued positions such as The Limited (US-based retailer) and IDT (US-based telecommunications company) with undervalued positions such as Liberty Media (US-based media) during the year. Q: WHAT IS YOUR STRATEGY FOR 2003? A: Although we were disappointed with performance in 2002, we are optimistic about the future. We believe that the "margin of safety" in the portfolio has improved as the discount to what we think the assets are worth has widened. We believe that weakness in the Fund's performance and global markets presents great opportunities for improving the quality of the portfolio. As always, our strategy will consist of bottom-up, individual stock selection using the "deep value" style of investing based on the principles of Benjamin Graham, the "father of value investing." This strategy involves seeking out companies that we believe are trading below their intrinsic value. In 2003, we will continue to be opportunistic and diligently search for value globally. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%.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. 2 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1YEAR 5 YEARS 10 YEARS INCEPTION ------------- ----- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (17.22%) N/A N/A (14.70%) ICDAX w/o Reimb. & 5.75% sales charge (19.42%) N/A N/A (22.36%) B SHARES w/Reimb. & w/ 5.00% CDSC (16.99%) N/A N/A (8.28%) ICDBX w/Reimb. & w/o 5.00% CDSC (12.62%) N/A N/A (5.25%) w/o Reimb. & w/ 5.00% CDSC (19.21%) N/A N/A (16.71%) w/o Reimb. & w/o 5.00% CDSC (14.94%) N/A N/A (13.96%) C SHARES w/Reimb. & w/ 1.00% CDSC (13.75%) N/A N/A (7.57%) ICDCX w/Reimb. & w/o 1.00% CDSC (12.88%) N/A N/A (7.57%) w/o Reimb. & w/ 1.00% CDSC (15.97%) N/A N/A (16.09%) w/o Reimb. & w/o 1.00% CDSC (15.12%) N/A N/A (16.09%) I SHARES w/Reimb. N/A N/A N/A (5.23%) N/A w/o Reimb. N/A N/A N/A (21.18%) ADVISOR SHARES w/Reimb. (11.86%) N/A N/A (3.72%) ICDVX w/o Reimb. (14.21%) N/A N/A (12.48%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Advisor Class commenced operations April 19, 2000. Class A, B and C shares commenced operations on September 4, 2001, September 26, 2001 and October 19, 2001, respectively. Class I shares commenced operations on November 5, 2002. 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 Cundill Global Value Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (4/00) of a $10,000 Investment (Advisor Class Shares) [GRAPH] MSCI WORLD IVY CUNDILL GLOBAL VALUE FUND INDEX ------------------------------- ---------- 19-Apr-00 10000 10000 30-Apr-00 10120 9576 31-May-00 9730 9332 30-Jun-00 10260 9646 31-Jul-00 9840 9373 31-Aug-00 10410 9677 30-Sep-00 10240 9161 31-Oct-00 10090 9006 30-Nov-00 10000 8458 31-Dec-00 10466 8594 31-Jan-01 10362 8763 28-Feb-01 10705 8022 31-Mar-01 10404 7490 30-Apr-01 10788 8039 31-May-01 11027 7927 30-Jun-01 10944 7678 31-Jul-01 10684 7585 31-Aug-01 10549 7220 30-Sep-01 9791 6583 31-Oct-01 9759 6708 30-Nov-01 9905 7104 31-Dec-01 10243 7148 31-Jan-02 10286 6931 28-Feb-02 10243 6870 31-Mar-02 10886 7173 30-Apr-02 11004 6929 31-May-02 11476 6940 30-Jun-02 10565 6518 31-Jul-02 10028 5968 31-Aug-02 9900 5978 30-Sep-02 9385 5320 31-Oct-02 9385 5712 30-Nov-02 9578 6019 31-Dec-02 9028 5727 The Morgan Stanley Capital International (MSCI) World 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. Japan 35% 2. Canada 13% 3. US 8% 4. Hong Kong 5% 5. South Korea 4% 6. Switzerland 3% 7. India 2% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. Consumer Discretionary 20% 2. Financials 15% 3. Healthcare 11% 4. Consumer Staples 9% 5. Industrials 8% 6. Materials 3% 7. Information Technology 3% 8. Telecommunication Services 2% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets -------- --------------------- 1. Asatsu-DK 5.0% 2. Sankyo Company, Limited 4.8% 3. Nikko Cordial Corporation 4.7% 4. Nippon Broadcasting System, Inc. 4.4% 5. Aiful Corporation 4.1% 6. Tokyo Broadcasting System, Inc. 3.9% 7. Torstar Corporation 3.7% 8. Lion Corporation 3.5% 9. QLT Inc. 3.4% 10. First Pacific Company Ltd. 3.3% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 3 IVY DEVELOPING MARKETS FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTMENT IN EQUITY SECURITIES OF COMPANIES THAT SHOULD BENEFIT FROM THE DEVELOPMENT AND GROWTH OF EMERGING MARKETS. (PHOTO) Note: Ivy Developing Markets Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Developing Markets Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Emerging Markets "We intend to concentrate on developing countries that possess unique opportunities of competitive advantage or niche strategies in an investor-friendly sovereign structure." Q: MOIRA, HOW DID IVY DEVELOPING MARKETS FUND PERFORM IN 2002? A: For 2002, Ivy Developing Markets Fund returned -17.32%, including the impact of the maximum sales charge, and -12.28% without the sales charge. The Fund underperformed its benchmark, the MSCI Emerging Markets Free Index, which returned -6.00%, and its peer group (as measured by the Lipper Emerging Markets Funds average), which returned -5.10%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Emerging markets fared considerably better than the world's major developed markets in 2002. At the beginning of the year, ample liquidity and hopes for a global recovery contributed to strong absolute performance. However, while the asset class continued to outperform on a relative basis, emerging equity markets were unable to shake-off turmoil in the rest of the world as the year progressed. Latin American markets suffered from a combination of global events and local crises. Stock markets in developing Asia posted mixed performance, with Hong Kong, Singapore and Taiwan all posting double-digit declines while smaller, more speculative markets such as Indonesia and Thailand posted gains. All the volatility caused the MSCI EMF Index to give up its first-quarter gains, and to end the year in negative territory. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: The Fund's exposure to Taiwanese technology stocks had the largest negative effect on performance. These stocks performed strongly in the last quarter of 2001 and into the first quarter of 2002. However, they then sold off sharply as investors began to worry that the increased demand seen in the first quarter would decline as inventories were rebuilt. An overweight position in Brazil also hurt performance. Socialist rhetoric from the leading presidential candidate compounded fears that problems in Argentina would spill over to the Brazilian economy. This led to a sharp sell-off in both the Brazilian equity market and its currency, the real. While the Fund's export-oriented holdings did well as a result of the weakening real, its more domestically oriented names took a hit. Indonesia, Pakistan and Thailand were among the world's best performing markets in 2002. Performance suffered from lack of exposure to these high-risk markets. However, while the Fund missed out in those markets, it benefited from staying out of harm's way in Argentina, which fell 50% in dollar terms, and Venezuela, where trading has been suspended since the end of November due to a general strike designed to oust the President. Q: THOMAS, HOW WILL YOU POSITION THE FUND FOR 2003? A: Going forward, the Fund's emerging market exposure will likely be less broadly dispersed. We intend to concentrate on developing countries that possess unique opportunities of competitive advantage or niche strategies in an investor-friendly sovereign structure. We will closely monitor developments in these areas in an effort to limit risk and take advantage of exciting new investment opportunities that can emerge as these countries increase the size and efficiency of private business, often through a pro-business public policy and privatization of government-owned industry. In turn, the relative size and cost of the government sector should shrink, while the consumer and business sectors grow. In terms of stock selection, there will be an increased emphasis on strong growth characteristics as a basic requirement rather than the prior selection process that heavily favored undervalued stocks. Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each specific region or country. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%.The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 4 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (17.32%) (4.86%) N/A (6.40%) IVCAX w/o Reimb. & 5.75% sales charge (19.41%) (6.54%) N/A (8.11%) B SHARES w/Reimb. & w/ 5.00% CDSC (17.32%) (5.01%) N/A (6.53%) IVCBX w/Reimb. & w/o 5.00% CDSC (12.96%) (4.63%) N/A (6.53%) w/o Reimb. & w/ 5.00% CDSC (19.50%) (6.74%) N/A (8.25%) w/o Reimb. & w/o 5.00% CDSC (15.25%) (6.36%) N/A (8.25%) C SHARES w/Reimb. & w/ 1.00% CDSC (13.93%) (4.60%) N/A (7.87%) IVCCX w/Reimb. & w/o 1.00% CDSC (13.06%) (4.60%) N/A (7.87%) w/o Reimb. & w/ 1.00% CDSC (16.19%) (6.43%) N/A (9.23%) w/o Reimb. & w/o 1.00% CDSC (15.34%) (6.43%) N/A (9.23%) ADVISOR SHARES w/Reimb. (11.96%) N/A N/A (5.66%) IVCVX w/o Reimb. (14.17%) N/A N/A (7.35%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A and Class B commenced operations November 1, 1994; Class C commenced operations April 30, 1996; Advisor Class commenced operations April 30, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 Developing Markets Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (11/94) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) [GRAPH] IVY MSCI DEVELOPING EMERGING MARKETS MARKETS FUND FREE INDEX ------------ ---------------- 01-Nov-94 9425 10000 30-Nov-94 8845 9480 31-Dec-94 8152 8719 31-Jan-95 7459 7791 28-Feb-95 7567 7591 31-Mar-95 7874 7639 30-Apr-95 8059 7982 31-May-95 8518 8407 30-Jun-95 8362 8432 31-Jul-95 8775 8621 31-Aug-95 8705 8418 30-Sep-95 8748 8378 31-Oct-95 8431 8057 30-Nov-95 8389 7914 31-Dec-95 8675 8265 31-Jan-96 9480 8852 29-Feb-96 9317 8711 31-Mar-96 9211 8779 30-Apr-96 9508 9130 31-May-96 9700 9089 30-Jun-96 9786 9146 31-Jul-96 9135 8521 31-Aug-96 9336 8739 30-Sep-96 9432 8815 31-Oct-96 9326 8580 30-Nov-96 9537 8724 31-Dec-96 9701 8763 31-Jan-97 10161 9361 28-Feb-97 10497 9762 31-Mar-97 10257 9505 30-Apr-97 10248 9522 31-May-97 10708 9794 30-Jun-97 11177 10319 31-Jul-97 11149 10473 31-Aug-97 9701 9140 30-Sep-97 9682 9393 31-Oct-97 7861 7852 30-Nov-97 7276 7565 31-Dec-97 7041 7748 31-Jan-98 6710 7140 28-Feb-98 7753 7885 31-Mar-98 7939 8228 30-Apr-98 7722 8138 31-May-98 6649 7023 30-Jun-98 5936 6286 31-Jul-98 6081 6485 31-Aug-98 4419 4610 30-Sep-98 4821 4903 31-Oct-98 5678 5419 30-Nov-98 6359 5870 31-Dec-98 6219 5784 31-Jan-99 5620 5691 28-Feb-99 5444 5747 31-Mar-99 6157 6504 30-Apr-99 7645 7309 31-May-99 7614 7266 30-Jun-99 8358 8091 31-Jul-99 8037 7871 31-Aug-99 8017 7942 30-Sep-99 7676 7674 31-Oct-99 7872 7837 30-Nov-99 8378 8540 31-Dec-99 9124 9626 31-Jan-00 9061 9683 29-Feb-00 8999 9811 31-Mar-00 9197 9859 30-Apr-00 8239 8924 31-May-00 7855 8555 30-Jun-00 8510 8857 31-Jul-00 8427 8401 31-Aug-00 8500 8443 30-Sep-00 7834 7705 31-Oct-00 7199 7147 30-Nov-00 6523 6522 31-Dec-00 6953 6679 31-Jan-01 7684 7597 28-Feb-01 7016 7000 31-Mar-01 6337 6315 30-Apr-01 6723 6619 31-May-01 6869 6698 30-Jun-01 6598 6561 31-Jul-01 6347 6155 31-Aug-01 6118 6094 30-Sep-01 5126 5151 31-Oct-01 5523 5470 30-Nov-01 6159 6041 31-Dec-01 6640 6521 31-Jan-2002 6671 6742 28-Feb-2002 6723 6853 31-Mar-2002 7078 7265 30-Apr-2002 7162 7312 31-May-2002 7047 7196 30-Jun-2002 6462 6656 31-Jul-2002 5888 6150 31-Aug-2002 5992 6244 30-Sep-2002 5272 5571 31-Oct-2002 5648 5932 30-Nov-2002 6076 6340 31-Dec-2002 5825 6130 The Morgan Stanley Capital International (MSCI) Emerging Markets Free 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. Past performance does not guarantee future results. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. South Korea 23% 2. Mexico 19% 3. Hong Kong 10% 4. Brazil 9% 5. Taiwan 9% 6. South Africa 6% 7. Poland 5% 8. Hungary 4% 9. United Kingdom 4% 10. Peru 3% 11. India 2% 12. Russia 2% 13. Luxembourg 2% 14. Chile 1% 15. Israel 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. Telecommunication Services 21% 2. Financials 21% 3. Materials 16% 4. Information Technology 13% 5. Consumer Discretionary 10% 6. Consumer Staples 7% 7. Energy 7% 8. Industrials 5% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets -------- --------------------- 1. Samsung Electronics 3.7% 2. Fomento Economico Mexicano 3.6% 3. POSCO 3.6% 4. Telefonos de Mexico S.A 3.5% 5. Kookmin Bank 3.5% 6. Korea Telecom Corporation 3.4% 7. Standard Bank Group Limited 3.2% 8. LG Chem Limited 3.0% 9. Grupo Financiero BBVA Banc 2.9% 10. Embraer Brasileira de Aeronautica 2.9% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 5 IVY EUROPEAN OPPORTUNITIES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN COMPANIES LOCATED IN OR DOING BUSINESS IN EUROPE. [PHOTO] Ivy European Opportunities Fund is sub-advised by London-based Henderson Investment Management Limited. The following is an interview with Stephen Peak, head of Henderson's Continental European Equities Team and portfolio manager of Ivy European Opportunities Fund. LIPPER CATEGORY European Region "We expect to retain a relatively cautious approach over the short- to medium-term while continuing our focus on opportunities to purchase companies that have been heavily oversold." Q: STEPHEN, HOW DID IVY EUROPEAN OPPORTUNITIES FUND PERFORM IN 2002? A: For 2002, Ivy European Opportunities Fund returned -8.86%, including the impact of the maximum sales charge, and -3.30% without the sales charge. The Fund outperformed its benchmark, the MSCI Europe Index, which returned -18.38%, and its peer group (as measured by the Lipper European Region Funds average), which returned -17.36%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: The year was difficult for European equity investors. Concerns initially centered on questions about when company earnings would start to improve. However, these concerns were soon eclipsed by fears that the US economic recovery was slowing down rapidly, as well as the growing threat of war between the US and Iraq. Many investors abandoned equities in favor of the safer havens offered by government bonds. European markets did rally strongly in the fourth quarter and were boosted further as the euro rose above parity with the US dollar and hit a three-year high. Following poor economic newsflow, particularly in Germany, the European Central Bank was persuaded to cut interest rates by 0.50% to 2.75% in early December, and this gave markets an added boost. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: We made some significant changes to the portfolio over 2002 that contributed positively to performance. For example, financials experienced heavy losses during the first three quarters, which led to some woeful performance within the sector. However, this financial distress also created interesting buying opportunities. As a result, we increased exposure to the sector. This strategy had a large positive effect on performance when financials proved to be one of the key sectors that underpinned the market advance in the fourth quarter. Conversely, tobacco stocks held up well throughout the year as the defensive European tobacco sector consistently outperformed the MSCI Europe Index. Our decision to sell and take profits from tobacco stocks, made during the fourth quarter of the year, proved beneficial to Fund performance. At the time, a significant move was made to shift into more attractively valued sectors with higher growth potential. Following a period of sustained underperformance for most of 2002, the European technology sector produced some good performance during the fourth quarter as investors took advantage of compelling valuations. However, it was technology-related and traditional cyclical stocks that suffered the largest losses in December as investors, increasingly cautious about the global economic and political prospects, took profits from November's gains. We retained our cautious approach toward technology, while at the same time continuing to focus on opportunities to purchase stocks that were overly hit by negative sentiment or that had resorted to fund raising to shore up their debts. We also established positions in companies with relatively stable businesses that we felt had been ignored by overly cautious investors. Q: WHAT IS OUR OUTLOOK AND STRATEGY GOING FORWARD? A: Because of ongoing political uncertainties and sluggish economic growth prospects, the outlook for European equities in 2003 remains uncertain. Valuations are no longer at the extremely distressed levels seen last September, but they are also not at the technically overbought levels reached at the end of November. In addition, risks abound over the potential war with Iraq and inflated oil prices. However, in our opinion European valuations remain relatively attractive, and we expect the region to perform well as the recovery gathers pace. Consequently, we believe the equity market will trade within a range until greater clarity -- on the economic, political and military fronts -- emerges. We expect to retain a relatively cautious approach over the short- to medium-term while continuing our focus on opportunities to purchase companies that have been heavily oversold. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. 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. 6 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (8.86)% N/A N/A 26.80% IEOAX w/o Reimb. & 5.75% sales charge (8.86)% N/A N/A 26.68% B SHARES w/Reimb. & w/ 5.00% CDSC (9.28)% N/A N/A 27.23% IEOBX w/Reimb. & w/o 5.00% CDSC (4.51)% N/A N/A 27.71% w/o Reimb. & w/ 5.00% CDSC (9.28)% N/A N/A 27.13% w/o Reimb. & w/o 5.00% CDSC (4.51)% N/A N/A 27.57% C SHARES w/Reimb. & w/ 1.00% CDSC (5.44)% N/A N/A 5.50% IEOCX w/Reimb. & w/o 1.00% CDSC (4.49)% N/A N/A 5.50% w/o Reimb. & w/ 1.00% CDSC (5.44)% N/A N/A 5.41% w/o Reimb. & w/o 1.00% CDSC (4.49)% N/A N/A 5.41% I SHARES w/Reimb. (3.34)% N/A N/A (19.93)% N/A w/o Reimb. (3.34)% N/A N/A (19.93)% ADVISOR SHARES w/Reimb. (3.33)% N/A N/A 29.21% IEOVX w/o Reimb. (3.33)% N/A N/A 28.96% CDSC = Contingent Deferred Sales Charge Advisor Class and I Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations May 4, 1999; Class B commenced operations May 24, 1999; Class C commenced operations October 24, 1999; Class I commenced operations March 16, 2000; Advisor Class commenced operations May 4, 1999. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 European Opportunities Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (5/99) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy European MSCI Opportunities Europe Fund Index ------------- ------ 05-May-99 9,425 10,000 30-May-99 10,969 9,520 30-Jun-99 16,119 9,680 31-Jul-99 17,890 9,770 31-Aug-99 18,812 9,870 30-Sep-99 18,671 9,793 31-Oct-99 19,534 10,154 30-Nov-99 26,034 10,428 31-Dec-99 29,743 11,496 31-Jan-2000 31,844 10,678 29-Feb-2000 42,748 11,234 31-Mar-2000 43,078 11,506 30-Apr-2000 39,362 10,998 31-May-2000 38,182 10,908 30-Jun-2000 40,404 11,142 31-Jul-2000 39,067 10,964 31-Aug-2000 38,702 10,835 30-Sep-2000 36,167 10,328 31-Oct-2000 34,171 10,249 30-Nov-2000 29,569 9,853 31-Dec-2000 31,084 10,532 31-Jan-2001 31,751 10,546 28-Feb-2001 30,652 9,621 31-Mar-2001 27,156 8,896 30-Apr-2001 27,210 9,517 31-May-2001 27,318 9,030 30-Jun-2001 24,975 8,685 31-Jul-2001 24,435 8,741 31-Aug-2001 24,957 8,514 30-Sep-2001 20,741 7,664 31-Oct-2001 21,876 7,908 30-Nov-2001 23,642 8,225 31-Dec-2001 24,661 8,436 31-Jan-2002 23,758 7,995 28-Feb-2002 23,993 7,994 31-Mar-2002 26,631 8,427 30-Apr-2002 27,335 8,363 31-May-2002 28,419 8,337 30-Jun-2002 27,245 8,048 31-Jul-2002 24,246 7,152 31-Aug-2002 24,481 7,151 30-Sep-2002 21,445 6,210 31-Oct-2002 22,493 6,810 30-Nov-2002 24,246 7,145 31-Dec-2002 23,848 6,886 If the Fund had not invested in IPOs, the one-year and since-inception average annual returns would have been (3.30)% and 1.03% respectively. The since-inception cumulative return with sales charge was 138.48%. If the Fund had not invested in IPOs, the since-inception cumulative return would have been (3.82)%. The Morgan Stanley Capital International (MSCI) Europe 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. The Ivy European Opportunities Fund was initially seeded on April 26, 1999, commenced operations on May 4, 1999 and received initial subscriptions on May 5, 1999, the date proceeds from share sales were invested according to Ivy European Opportunities Fund's investment objective. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets 1. United Kingdom 33% 2. Netherlands 18% 3. France 16% 4. Switzerland 8% 5. Greece 6% 6. Germany 5% 7. Spain 4% 8. South Africa 3% 9. Finland 2% 10. Italy 2% 11. Denmark 1% 12. Austria 1% 13. Belgium 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Consumer Discretionary 25% 2. Industrials 25% 3. Financials 22% 4. Information Technology 7% 5. Consumer Staples 7% 6. Materials 5% 7. Energy 5% 8. Telecommunication Services 3% 9. Utilities 1% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. IHC Caland NV 3.8% 2. Sagem SA 3.5% 3. Nasper Limited 3.3% 4. Fugro NV 3.2% 5. Aegon NV 3.0% 6. Zurich Financial Services AG 2.9% 7. Shell Transport & Trading Co. 2.8% 8. Hellenic Telecommunications Org. 2.8% 9. PHS Group plc 2.7% 10. easyJet plc 2.5% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 7 IVY GLOBAL FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN STOCKS OF COMPANIES WORLDWIDE -- INCLUDING THE US. [PHOTO] Note: Ivy Global Fund utilized a dual management approach until December 16th, 2002. The international portion was managed by Moira McLachlan and the Ivy International Equities team, while the US portion was managed by Paul Baran. At right, they discuss factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Global Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Global "Our basic stock selection approach will focus on what we feel are stable companies with impressive corporate management, in sectors best positioned for the current market environment." Q: HOW DID IVY GLOBAL FUND PERFORM IN 2002? A: For 2002, Ivy Global Fund returned -25.01%, including the impact of the maximum sales charge, and -20.44% without the sales charge. The Fund underperformed its benchmark, the MSCI World Index, which returned -19.89%, and its peer group (as measured by the Lipper Global Funds average), which returned -19.53%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: International markets were extremely volatile in 2002, and this contributed to the Fund's negative return. Equities around the world were dragged down by sluggish economic growth, poor corporate profits and the Iraq situation. The performance of the Fund's international portion was particularly hurt by an underweight in Japan, a market that was relatively resilient in 2002. Stock selection in Japan was another negative. A number of Japanese holdings were impacted as investors became concerned about the pace of the global recovery and the strength of external demand. Poor stock selection in the UK also had a negative impact. Stock selection in France had the most significant positive impact on performance. In the US, 2002 saw a continuation of the bear market that began in early 2000. In this challenging environment, the performance of the US portion was positively affected by our avoidance of "disaster stocks" in high-profile companies that experienced financial scandals. Performance also benefited from holdings in the banking sector, many of which rose in price during the period. Certain consumer stocks also increased in price, while others declined but still outperformed the market. In addition, underexposure to the troubled electricity merchant-area helped performance, as did our stock picks in the general energy area. Performance was negatively impacted by investments in the technology sector. AOL Time Warner also hurt performance, as did Home Depot, Schering-Plough and Bristol-Myers. Q: THOMAS, WHAT IS YOUR STRATEGY FOR IVY GLOBAL FUND GOING FORWARD? A: We intend to focus more on stocks with strong growth characteristics and less on stocks that appear to be undervalued. Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each region. Our basic stock selection approach will focus on what we feel are stable companies with impressive corporate management, in sectors best positioned for the current market environment. Q: WHAT IS YOUR OUTLOOK FOR 2003? A: We expect global equity markets to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. Despite a high level of financial market uncertainty early in the year, we feel that consensus earnings expectations need to be reduced further. Corporations are facing higher operating costs, but generally cannot raise output prices. In this environment of little or no corporate pricing power, we will seek investments in companies that we feel are best able to thrive. Our North American focus will be on companies with earnings that we believe are sustainable despite the risk of an Iraqi war and the possibility of weaker U.S. consumer spending. In Continental Europe, we believe that the best opportunities are likely in growth companies with defensive characteristics such as consumer product focus, impressive management, strong balance sheets, attractive dividend yields and solid competitive market position. In Britain, growth stocks should, in our opinion, still be able to benefit from the relatively strong domestic economy. Despite continuing imbalances in Japan's economy, we feel that there are still quality companies with good growth prospects, especially some of the larger exporters. In Asia, we prefer to concentrate our holdings in industry leaders that benefit from continued Chinese dominance of business demand in the region. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 8 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (25.01)% (6.19)% 0.66% 1.41% MCGLX w/o Reimb. & 5.75% sales charge (26.80)% (7.43)% (0.09)% 0.44)% B SHARES w/Reimb. & w/ 5.00% CDSC (26.14)% (6.54)% N/A (2.09)% IVGBX w/Reimb. & w/o 5.00% CDSC (22.25)% (6.17)% N/A (2.09)% w/o Reimb. & w/ 5.00% CDSC (27.90)% (7.78)% N/A (2.86)% w/o Reimb. & w/o 5.00% CDSC (24.10)% (7.41)% N/A (2.86)% C SHARES w/Reimb. & w/ 1.00% CDSC (23.51)% (6.45)% N/A (5.89)% IVGCX w/Reimb. & w/o 1.00% CDSC (22.73)% (6.45)% N/A (5.89)% w/o Reimb. & w/ 1.00% CDSC (25.30)% (7.71)% N/A (6.84)% w/o Reimb. & w/o 1.00% CDSC (24.54)% (7.71)% N/A (6.84)% ADVISOR SHARES w/Reimb. (21.36)% N/A N/A (9.29)% IVGVX w/o Reimb. (23.23)% N/A N/A (10.84)% CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations April 18, 1991; Class B commenced operations April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class commenced operations April 30, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 Global Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (4/91) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy MSCI Global World Fund Index ------ ------ 15-Apr-91 9,425 10,000 01-May-91 9,331 10,075 31-May-91 9,472 10,300 28-Jun-91 8,871 9,661 31-Jul-91 9,258 10,114 30-Aug-91 9,465 10,079 30-Sep-91 9,531 10,340 31-Oct-91 9,692 10,505 30-Nov-91 9,277 10,044 31-Dec-91 10,113 10,772 31-Jan-92 10,444 10,569 29-Feb-92 10,614 10,384 31-Mar-92 10,330 9,891 29-Apr-92 10,595 10,026 29-May-92 10,880 10,422 30-Jun-92 10,637 10,069 31-Jul-92 10,627 10,092 31-Aug-92 10,445 10,334 30-Sep-92 10,274 10,236 31-Oct-92 10,163 9,955 30-Nov-92 10,213 10,130 31-Dec-92 10,389 10,209 31-Jan-93 10,492 10,240 28-Feb-93 10,441 10,480 31-Mar-93 10,800 11,084 30-Apr-93 11,015 11,595 31-May-93 11,241 11,859 30-Jun-93 11,120 11,756 31-Jul-93 11,120 11,995 31-Aug-93 11,737 12,542 30-Sep-93 11,601 12,308 31-Oct-93 12,334 12,644 30-Nov-93 12,470 11,926 31-Dec-93 13,467 12,506 31-Jan-94 14,240 13,328 28-Feb-94 13,800 13,153 31-Mar-94 13,006 12,583 30-Apr-94 13,312 12,969 31-May-94 13,492 12,999 30-Jun-94 12,977 12,960 31-Jul-94 13,729 13,204 31-Aug-94 14,301 13,598 30-Sep-94 13,881 13,238 31-Oct-94 13,913 13,611 30-Nov-94 13,232 13,018 31-Dec-94 12,848 13,141 31-Jan-95 12,283 12,941 28-Feb-95 12,451 13,126 31-Mar-95 12,826 13,756 30-Apr-95 13,281 14,232 31-May-95 13,714 14,350 30-Jun-95 13,654 14,343 31-Jul-95 14,249 15,057 31-Aug-95 14,108 14,718 30-Sep-95 14,370 15,144 31-Oct-95 13,976 14,902 30-Nov-95 14,227 15,416 31-Dec-95 14,400 15,864 31-Jan-96 15,254 16,148 29-Feb-96 15,327 16,243 31-Mar-96 15,447 16,509 30-Apr-96 16,048 16,894 31-May-96 16,133 16,906 30-Jun-96 16,084 16,988 31-Jul-96 15,230 16,384 31-Aug-96 15,724 16,569 30-Sep-96 16,000 17,214 31-Oct-96 16,145 17,331 30-Nov-96 16,626 18,299 31-Dec-96 16,734 18,002 31-Jan-97 17,242 18,216 28-Feb-97 17,484 18,422 31-Mar-97 17,319 18,054 30-Apr-97 17,281 18,641 31-May-97 18,157 19,788 30-Jun-97 18,831 20,771 31-Jul-97 19,466 21,725 31-Aug-97 17,674 20,268 30-Sep-97 18,500 21,366 31-Oct-97 16,061 20,238 30-Nov-97 15,400 20,592 31-Dec-97 15,276 20,840 31-Jan-98 15,485 21,417 28-Feb-98 17,288 22,862 31-Mar-98 18,392 23,824 30-Apr-98 18,532 24,054 31-May-98 17,875 23,749 30-Jun-98 16,799 24,309 31-Jul-98 16,841 24,266 31-Aug-98 13,487 21,026 30-Sep-98 13,361 21,395 31-Oct-98 14,982 23,325 30-Nov-98 16,296 24,709 31-Dec-98 16,588 25,912 31-Jan-99 16,441 26,476 28-Feb-99 16,017 25,767 31-Mar-99 16,808 26,837 30-Apr-99 18,640 27,891 31-May-99 18,039 26,868 30-Jun-99 19,563 28,117 31-Jul-99 19,314 28,029 31-Aug-99 19,402 27,975 30-Sep-99 18,815 27,700 31-Oct-99 19,226 29,136 30-Nov-99 19,621 29,952 31-Dec-99 20,985 32,373 31-Jan-00 19,515 30,515 29-Feb-00 19,421 30,594 31-Mar-00 20,625 32,705 30-Apr-00 19,875 31,318 31-May-00 19,703 30,522 30-Jun-00 20,844 31,546 31-Jul-00 20,719 30,654 31-Aug-00 21,141 31,647 30-Sep-00 19,421 29,961 31-Oct-00 19,093 29,455 30-Nov-00 17,748 27,663 31-Dec-00 18,066 28,107 31-Jan-01 18,423 28,660 28-Feb-01 16,655 26,236 31-Mar-01 15,449 24,494 30-Apr-01 16,621 26,293 31-May-01 16,366 25,925 30-Jun-01 15,823 25,111 31-Jul-01 15,636 24,807 31-Aug-01 14,871 23,612 30-Sep-01 13,256 21,529 31-Oct-01 13,732 21,940 30-Nov-01 14,684 23,233 31-Dec-01 14,803 23,378 31-Jan-2002 14,412 22,667 28-Feb-2002 14,378 22,468 31-Mar-2002 14,956 23,458 30-Apr-2002 14,412 22,660 31-May-2002 14,327 22,698 30-Jun-2002 13,562 21,317 31-Jul-2002 12,407 19,518 31-Aug-2002 12,322 19,552 30-Sep-2002 10,911 17,399 31-Oct-2002 11,897 18,681 30-Nov-2002 12,542 19,686 31-Dec-2002 11,778 18,729 The Morgan Stanley Capital International (MSCI) World 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. US 55% 2. United Kingdom 10% 3. Japan 7% 4. France 6% 5. Netherlands 5% 6. Switzerland 4% 7. Germany 3% 8. Mexico 2% 9. Australia 2% 10. Italy 2% 11. Spain 1% 12. South Korea 1% 13. Finland 1% 14. Hong Kong 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. Financials 23% 2. Consumer Discretionary 14% 3. Information Technology 12% 4. Industrials 11% 5. Healthcare 10% 6. Consumer Staples 10% 7. Materials 6% 8. Telecommunication Services 6% 9. Energy 5% 10. Utilities 3% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets -------- --------------------- 1. Microsoft Corporation 2.1% 2. S&P 500 Depository Receipts 1.9% 3. Exxon Mobil Corporation 1.9% 4. General Electric Company 1.8% 5. Wal-Mart Stores, Inc. 1.8% 6. Unilever plc 1.4% 7. HBOS plc 1.4% 8. Citigroup Inc. 1.4% 9. Pfizer Inc. 1.3% 10. Vodafone AirTouch plc 1.3% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 9 IVY GLOBAL NATURAL RESOURCES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN EQUITY SECURITIES OF COMPANIES THAT EXPLORE, DEVELOP, PRODUCE AND/OR DISTRIBUTE NATURAL RESOURCES AND OTHER BASIC COMMODITIES, OR IN THOSE THAT SUPPLY GOODS AND SERVICES TO SUCH COMPANIES. [PHOTO] The following is an interview with Fred Sturm, portfolio manager of Ivy Global Natural Resources Fund and member of the Mackenzie Financial Corporation investment team, the Fund's investment advisor. LIPPER CATEGORY Natural Resources "Looking at the resources sector as a whole, we believe that while stronger performance from other sectors may hold back resource stocks, economic activity should support commodity prices going forward." Q: FRED, HOW DID IVY GLOBAL NATURAL RESOURCES FUND PERFORM IN 2002? A: For 2002, Ivy Global Natural Resources Fund returned -1.35%, including the impact of the maximum sales charge, and 4.66% without the sales charge. The Fund outperformed its benchmark, the MSCI Commodities-Related Index, which returned -5.26%, and its peer group (as measured by the Lipper Natural Resources Funds average), which returned -6.25%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: The natural resources sector held up better than the broader stock market, but it still showed disappointing results for the year. The third quarter was particularly volatile as investors worried about a possible double dip recession and the resultant downward revision in earnings expectations. However, both the market and the sector rallied in the fourth quarter. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Although the Fund performed well relative to its benchmark and peer group, absolute performance was disappointing. This was due to two factors: broader market fears of a double-dip recession, and our somewhat early entry into the more depressed areas of the market. For example, although the Fund successfully bypassed the carnage in independent energy producers, we made some initial purchases in that area -- to take advantage of depressed prices, which in our view offered good buying opportunities -- during the year that have yet to bear fruit. However, our three-part investment strategy led to some strong relative performance throughout the year. The first part of the strategy involves anchoring the portfolio with international low-cost leaders. This led to gains in 2002 as we emphasized leading low-cost Canadian energy and Brazilian pulp producers over their US counterparts. Strong performance from world-class nickel producer Inco, a Canadian company, also helped the Fund. Augmenting the portfolio with companies adding value through exploration and development is the second part of the strategy, and this, too, helped performance. For example, our stock selection in energy services and gold focused on growth-oriented smaller companies, many of which outperformed the larger-cap producers. Finally, we seek to take advantage of commodity price trends by making subsector shifts when necessary. This yielded positive results in the precious metals and energy areas. The Fund had a proportionally larger weighting in gold (which performed strongly) than its competitors, but as gold became more expensive we reduced the Fund's gold weighting and increased exposure to energy, a move that helped performance in the first half of 2002. Q: DID THE FUND BENEFIT FROM CONSOLIDATION IN THE RESOURCES SECTOR? A: Yes. Undervalued companies often become takeover targets, and the initial benefits accrue to the target, rather than the acquirer. We were fortunate over the year to identify acquisition targets and to benefit from this trend. For example, we invested in Fording, a leading producer of metallurgical coal, and later sold at meaningful gains into a takeover bid. Q: WHAT IS YOUR STRATEGY GOING FORWARD? A: We believe that both gold and oil prices, having risen in anticipation of war with Iraq, may trade lower once this issue gets more clarity. With this in mind, we reduced exposure to gold, using the proceeds to increase the Fund's weightings in forest products, but have maintained a significant energy exposure because we believe that energy stocks still have room to advance after a pullback in oil prices. Looking at the resources sector as a whole, we believe that while stronger performance from other sectors may hold back resource stocks, economic activity should support commodity prices going forward. Resource sectors also tend to perform well when currencies are under pressure. For reasons of inflation protection, portfolio diversification and return opportunities, we believe that the Fund continues to merit attention. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. 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. 10 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (1.35)% 4.49% N/A 4.90% IGNAX w/o Reimb. & 5.75% sales charge (1.52)% 2.19% N/A 2.96% B SHARES w/Reimb. & w/ 5.00% CDSC (1.48)% 4.63% N/A 5.05% IGNBX w/Reimb. & w/o 5.00% CDSC 3.52% 4.96% N/A 5.18% w/o Reimb. & w/ 5.00% CDSC (1.66)% 2.45% N/A 3.22% w/o Reimb. & w/o 5.00% CDSC 3.34% 2.78% N/A 3.35% C SHARES w/Reimb. & w/ 1.00% CDSC 2.46% 4.63% N/A 4.87% IGNCX w/Reimb. & w/o 1.00% CDSC 3.46% 4.63% N/A 4.87% w/o Reimb. & w/ 1.00% CDSC 2.28% 2.01% N/A 2.67% w/o Reimb. & w/o 1.00% CDSC 3.28% 2.01% N/A 2.67% ADVISOR SHARES w/Reimb. 4.46% N/A N/A 15.14% IGNVX w/o Reimb. 4.29% N/A N/A 12.99% CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations January 1, 1997; Advisor Class commenced operations April 8, 1999. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 Global Natural Resources Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (1/97) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy Global MSCI Natural Commodity- Resources Related Fund Index 02-Jan-97 9,425 10,000 31-Jan-97 10,151 10,053 28-Feb-97 11,112 9,916 31-Mar-97 10,264 9,709 30-Apr-97 10,452 9,621 31-May-97 11,546 10,326 30-Jun-97 10,980 10,416 31-Jul-97 11,376 11,218 31-Aug-97 11,810 11,093 30-Sep-97 13,138 11,617 31-Oct-97 11,536 10,788 30-Nov-97 9,368 10,041 31-Dec-97 10,080 9,778 31-Jan-98 10,315 9,714 28-Feb-98 10,359 10,012 31-Mar-98 10,527 10,357 30-Apr-98 11,232 10,600 31-May-98 9,722 9,662 30-Jun-98 8,581 9,216 31-Jul-98 7,865 8,359 31-Aug-98 5,940 6,937 30-Sep-98 6,947 8,609 31-Oct-98 7,719 9,126 30-Nov-98 7,384 8,569 31-Dec-98 7,122 8,349 31-Jan-99 7,279 7,937 28-Feb-99 6,975 7,921 31-Mar-99 8,102 8,554 30-Apr-99 9,668 10,152 31-May-99 8,823 9,416 30-Jun-99 9,296 10,067 31-Jul-99 9,657 9,815 31-Aug-99 9,905 10,043 30-Sep-99 10,649 10,140 31-Oct-99 9,815 9,761 30-Nov-99 9,634 9,634 31-Dec-99 10,040 10,140 31-Jan-2000 9,725 9,308 29-Feb-2000 9,522 8,700 31-Mar-2000 9,837 9,748 30-Apr-2000 9,849 9,752 31-May-2000 10,232 10,435 30-Jun-2000 10,694 9,553 31-Jul-2000 10,198 9,286 31-Aug-2000 11,088 9,970 30-Sep-2000 10,773 9,574 31-Oct-2000 9,995 9,845 30-Nov-2000 9,556 10,072 31-Dec-2000 11,030 11,715 31-Jan-2001 11,404 11,050 28-Feb-2001 11,958 11,062 31-Mar-2001 11,494 10,378 30-Apr-2001 13,125 11,476 31-May-2001 13,861 11,778 30-Jun-2001 13,034 11,217 31-Jul-2001 11,845 11,547 31-Aug-2001 11,607 11,433 30-Sep-2001 10,248 10,398 31-Oct-2001 11,460 10,825 30-Nov-2001 11,664 11,275 31-Dec-2001 12,728 11,540 31-Jan-2002 13,165 11,860 28-Feb-2002 14,248 12,217 31-Mar-2002 15,665 12,796 30-Apr-2002 15,964 12,583 31-May-2002 16,575 13,055 30-Jun-2002 14,928 12,597 31-Jul-2002 12,532 10,806 31-Aug-2002 13,016 11,021 30-Sep-2002 12,014 10,281 31-Oct-2002 12,509 10,430 30-Nov-2002 12,831 11,025 31-Dec-2002 13,322 10,933 The Morgan Stanley Capital International (MSCI) Commodity-Related 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. US 40% 2. Canada 32% 3. South Africa 8% 4. Brazil 7% 5. Finland 4% 6. Mexico 4% 7. Peru 2% 8. Australia 1% 9. France 1% 10. Norway 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. Materials 48% 2. Energy 44% 3. Industrials 3% 4. Utilities 2% 5. Consumer Staples 1% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets -------- --------------------- 1. Impala Platinum Holdings Limited 5.1% 2. Trican Well Service Ltd. 4.9% 3. NQL Drilling Tools Inc. 4.3% 4. National-Oilwell, Inc. 4.2% 5. Cemex S.A. De C.V 4.1% 6. Votorantim Celulose e Papel 3.1% 7. Outokumpu Oyj 3.0% 8. Noble Corporation 3.0% 9. Stelmar Shipping Ltd. 2.9% 10 Canadian Natural Resources Ltd. 2.8% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 11 IVY GLOBAL SCIENCE & TECHNOLOGY FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING PRIMARILY IN THE COMMON STOCK OF COMPANIES THAT ARE EXPECTED TO BENEFIT FROM THE DEVELOPMENT, ADVANCEMENT AND/OR USE OF SCIENCE AND TECHNOLOGY. [PHOTO] Note: Ivy Global Science & Technology Fund was managed by James W. Broadfoot until December 16th, 2002. At right, he discusses factors relating to Fund performance in 2002. Zachary H. Shafran, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Global Science & Technology Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Science & Technology "We intend to continue to scan the global markets in search of investments to construct a diverse investment portfolio within the science and technology areas." Q: JIM, HOW DID IVY GLOBAL SCIENCE & TECHNOLOGY FUND PERFORM IN 2002? A: For 2002, Ivy Global Science & Technology Fund returned -49.44%, including the impact of the maximum sales charge, and -46.36% without the sales charge. The Fund underperformed its benchmark, the Russell 3000 Technology Index, which returned -39.06%, as well as its peer group (as measured by the Lipper Science and Technology Funds average), which returned -43.01%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Economic weakness, threats of war, accounting scandals and large declines in the broader market all took their toll on the technology sector in 2002. These issues made investors extremely nervous, leading them to shun higher-risk stocks. It was no surprise, then, to see that technology and telecom were the two worst performing equity sectors in 2002. Investors did not want to hold risky assets. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: The Fund's small- and mid-cap bias had a negative impact on performance as smaller-cap, higher-risk stocks significantly underperformed larger-cap names. Performance was also negatively impacted by holdings in the semiconductor area, which tends to be one of the more volatile technology sectors. These stocks rallied in the fourth quarter, but experienced difficult second and third quarters. In 2002, corporate IT departments continued to hold back on spending, and this negatively affected some of the Fund's software holdings. For example, software companies that sell their products to retailers suffered as consumer spending declined toward the end of the period. Firm-specific issues in certain videogame holdings also hurt performance, as did an underweight in large technology companies such as Microsoft and Dell. Both comprise a large portion of the Russell 3000 Technology Index and showed better relative performance than the Fund's smaller technology holdings. On the positive side, some of the Fund's healthcare names did well. Stocks such as Teva Pharmaceutical Industries, a leading manufacturer of generic drugs, and Varian Medical Systems, a manufacturer of X-ray and oncology products, showed positive returns for the period. Consumer-related holdings also did well, despite a pullback in the fourth quarter. In addition, a number of the Fund's government- and defense-related stocks showed positive returns. Q: ZACK, WHAT IS YOUR OUTLOOK FOR 2003? A: Following three years of poor equity market performance, with the global science and technology sectors being particularly hard hit, many expect 2003 to be a year of recovery. But while we believe there are signs of economic recovery and market stabilization, the potential for a sharp sustained rise in corporate profits is, in our view, unlikely in the near term. The lingering effects of overcapacity, particularly in technology, have created an especially difficult competitive environment. Healthcare, particularly in the developed world is suffering from just the opposite: inflation. It is in this type of a slow growth, competitive environment that companies with the potential to grow through execution and innovation will be rewarded. Q: HOW ARE YOU POSITIONING THE PORTFOLIO GOING FORWARD? A: Upon commencing management of the Fund in late December 2002, we repositioned for increased exposure in healthcare and decreased exposure in technology. We also raised the cash reserve position. In light of our 2003 outlook, we are unable to identify a broad based "market moving" theme. We are therefore working diligently to identify individual companies that meet our investment criteria. We will likely not position the Fund to track a particular index, either by industry, subsector, or geography. Rather, we intend to continue to scan the global markets in search of investments to construct a diverse investment portfolio within the science and technology areas. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 12 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------- -------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (49.44)% (15.95)% N/A (4.67)% IVTAX w/o Reimb. & 5.75% sales charge (50.13)% (16.23)% N/A (4.94)% B SHARES w/Reimb. & w/ 5.00% CDSC (49.55)% (15.97)% N/A (4.64)% IVTBX w/Reimb. & w/o 5.00% CDSC (46.89)% (15.63)% N/A (4.50)% w/o Reimb. & w/ 5.00% CDSC (50.26)% (16.26)% N/A (4.91)% w/o Reimb. & w/o 5.00% CDSC (47.64)% (15.92)% N/A (4.76)% C SHARES w/Reimb. & w/ 1.00% CDSC (47.32)% (15.58)% N/A (4.42)% IVTCX w/Reimb. & w/o 1.00% CDSC (46.79)% (15.58)% N/A (4.42)% w/o Reimb. & w/ 1.00% CDSC (48.06)% (15.87)% N/A (4.68)% w/o Reimb. & w/o 1.00% CDSC (47.54)% (15.87)% N/A (4.68)% ADVISOR SHARES w/Reimb. (46.25)% N/A N/A (18.23)% IVTVX w/o Reimb. (46.98)% N/A N/A (18.49)% CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations July 22, 1996; Advisor Class commenced operations April 15, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 Global Science & Technology Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (7/96) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy Global Science Russell & 3000 Technology Technology Fund Index ---------- ---------- 22-Jul-96 9,425 10,000 31-Jul-96 9,491 10,000 31-Aug-96 11,084 10,484 30-Sep-96 14,081 11,633 31-Oct-96 14,467 11,610 30-Nov-96 14,995 13,242 31-Dec-96 15,489 12,845 31-Jan-97 15,905 14,233 28-Feb-97 14,186 12,957 31-Mar-97 12,523 12,309 30-Apr-97 12,420 13,241 31-May-97 15,017 14,569 30-Jun-97 15,716 14,665 31-Jul-97 16,821 17,413 31-Aug-97 16,981 17,143 30-Sep-97 18,322 17,630 31-Oct-97 17,132 16,075 30-Nov-97 16,764 16,331 31-Dec-97 16,500 15,396 31-Jan-98 16,566 16,334 28-Feb-98 18,030 17,994 31-Mar-98 18,644 18,021 30-Apr-98 18,956 19,160 31-May-98 17,501 17,769 30-Jun-98 18,634 19,304 31-Jul-98 18,030 19,752 31-Aug-98 14,158 16,342 30-Sep-98 16,037 18,784 31-Oct-98 16,642 20,041 30-Nov-98 19,126 22,510 31-Dec-98 22,318 25,902 31-Jan-99 24,745 29,831 28-Feb-99 22,129 26,049 31-Mar-99 24,736 27,671 30-Apr-99 24,679 28,225 31-May-99 24,443 28,242 30-Jun-99 27,446 31,857 31-Jul-99 26,625 31,885 31-Aug-99 28,391 33,866 30-Sep-99 30,025 33,402 31-Oct-99 33,774 34,060 30-Nov-99 40,216 38,494 31-Dec-99 49,670 46,166 31-Jan-2000 49,791 44,255 29-Feb-2000 64,926 52,588 31-Mar-2000 60,792 55,212 30-Apr-2000 49,781 50,105 31-May-2000 43,382 44,724 30-Jun-2000 51,681 50,287 31-Jul-2000 48,481 47,823 31-Aug-2000 55,876 54,322 30-Sep-2000 50,767 45,821 31-Oct-2000 42,153 42,792 30-Nov-2000 27,659 32,980 31-Dec-2000 28,316 30,187 31-Jan-2001 31,247 34,751 28-Feb-2001 20,540 24,913 31-Mar-2001 15,583 21,268 30-Apr-2001 19,728 25,013 31-May-2001 18,843 23,910 30-Jun-2001 18,329 24,066 31-Jul-2001 15,963 22,513 31-Aug-2001 13,700 19,690 30-Sep-2001 10,697 15,727 31-Oct-2001 11,952 18,578 30-Nov-2001 13,165 21,686 31-Dec-2001 13,690 21,341 31-Jan-2002 13,104 21,510 28-Feb-2002 10,934 18,316 31-Mar-2002 12,271 19,588 30-Apr-2002 10,903 17,277 31-May-2002 9,977 16,648 30-Jun-2002 8,969 14,477 31-Jul-2002 7,550 13,129 31-Aug-2002 7,251 13,009 30-Sep-2002 6,490 10,672 31-Oct-2002 7,385 12,864 30-Nov-2002 8,383 15,175 31-Dec-2002 7,344 13,004 The Russell 3000 Technology 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. US 89% 2. Japan 4% 3. Switzerland 4% 4. United Kingdom 3% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets --------------------- 1. Healthcare 38% 2. Information Technology 12% 3. Energy 12% 4. Industrials 12% 5. Consumer Discretionary 3% 6. Telecommunication Services 2% 7. Materials 2% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets --------------------- 1. Forest Laboratories, Inc. 6.4% 2. Concord EFS, Inc. 4.9% 3. HCA Inc. 4.7% 4. Guidant Corporation 3.9% 5. Biogen, Inc. 3.5% 6. Northrop Gruman Corporation 3.4% 7. Alcon, Inc. 3.3% 8. Abbott Laboratories 2.6% 9. Pfizer Inc. 2.5% 10. Vodafone Group plc 2.5% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 13 IVY INTERNATIONAL FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTING IN EQUITY SECURITIES TRADED IN EUROPEAN, PACIFIC BASIN AND LATIN AMERICAN MARKETS. [PHOTO] Note: Ivy International Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy International Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY International "Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each region or country." Q: MOIRA, HOW DID IVY INTERNATIONAL FUND PERFORM IN 2002? A: For 2002, Ivy International Fund returned -25.51%, including the impact of the maximum sales charge, and -20.96% without the sales charge. The Fund underperformed its benchmark, the MSCI EAFE index, which returned -15.94%, and its peer group (as measured by the Lipper International Funds average), which returned -16.67%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: International markets were extremely volatile in 2002. Fears of a double-dip recession and global deflation contributed to sharp declines interspersed with equally sharp rallies. Despite ample global liquidity and much-improved valuations, markets were impacted by sluggish economic growth, poor corporate profits and the Iraq situation. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Performance suffered from an underweight position in Japan, a market that was relatively resilient in 2002. Our stock selection in Japan was another negative. A number of Japanese holdings were impacted as investors became concerned about the pace of the global recovery and the strength of external demand. Poor stock selection in the UK also had a negative impact. While we limited losses by eliminating exposure to "problem stocks" early in the year, we did not do so soon enough. In addition, overweights in Germany and the Netherlands hurt performance. In the third quarter, increased concerns about the solvency of European insurers contributed to sharp sell-offs in both markets, and in France. Poor equity market performance, in turn, led to forced selling by the insurers, reinforcing the downdraft. While the Fund fared better than most in France, its German and Dutch holdings took the brunt of the downturn. Stock selection in France had the most significant positive impact on performance. In contrast to the money-center banks and European insurers, French banks performed well. As a result of their domestic focus, they were insulated from problem loans to Argentina and the corporate collapses in the US that plagued more globally oriented banks. Q: THOMAS, WHAT IS YOUR STRATEGY FOR IVY INTERNATIONAL FUND GOING FORWARD? A: Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each region or country. Our basic stock selection approach will focus on what we believe are stable companies with impressive corporate management, in sectors we feel are best positioned for the current market environment. Q: WHAT ARE YOUR EXPECTATIONS FOR 2003? A: We expect global equity markets to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. Despite a high level of financial market uncertainty early in the year, we feel that consensus earnings expectations need to be reduced further. Corporations are facing higher operating costs, but generally cannot raise output prices. In this environment of little or no corporate pricing power, we will seek investments in companies that we feel are best able to thrive. In Continental Europe, we believe that the best opportunities are likely in companies with defensive characteristics such as consumer product focus, impressive management, strong balance sheets, attractive dividend yields and solid competitive market position. In Britain, growth stocks should, in our opinion, still be able to benefit from the relatively strong domestic economy. Despite continuing imbalances in Japan's economy, we feel that there are still quality companies with good prospects, especially some of the larger exporters. In Asia, we prefer to concentrate our holdings in industry leaders that benefit from continued Chinese dominance of business demand in the region. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 14 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- -------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (25.51)% (8.76)% 3.80% 7.35% IVINX w/o Reimb. & 5.75% sales charge (25.51)% (8.75)% 3.79% 7.34% B SHARES w/Reimb. & w/ 5.00% CDSC (25.90)% (8.93)% N/A 0.31% IVIBX w/Reimb. & w/o 5.00% CDSC (22.00)% (8.56)% N/A 0.31% w/o Reimb. & w/ 5.00% CDSC (25.90)% (8.92)% N/A 0.30% w/o Reimb. & w/o 5.00% CDSC (22.00)% (8.57)% N/A 0.30% C SHARES w/Reimb. & w/ 1.00% CDSC (22.78)% (8.54)% N/A (3.64)% IVNCX w/Reimb. & w/o 1.00% CDSC (22.00)% (8.54)% N/A (3.64)% w/o Reimb. & w/ 1.00% CDSC (22.78)% (8.55)% N/A (3.65)% w/o Reimb. & w/o 1.00% CDSC (22.00)% (8.55)% N/A (3.65)% I SHARES w/Reimb. (20.95)% (7.39)% N/A 1.31% IVIIX w/o Reimb. (20.95)% (7.40)% N/A 1.30% ADVISOR SHARES w/Reimb. (18.71)% N/A N/A (21.83)% N/A w/o Reimb. (18.71)% N/A N/A (21.86)% CDSC = Contingent Deferred Sales Charge Advisor Class and I Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations November 15, 1985 (performance here is calculated based on the date the Fund first became available for sale to the public, April 30, 1986); Class B commenced operations October 22, 1993; Class C commenced operations April 30, 1996; Class I commenced operations October 6, 1994; Advisor Class commenced operations August 31, 2000. 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 International Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW 10-Year Performance Comparison of a $10,000 Investment in the Fund (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy MSCI International EAFE Fund Index ------------- ----- 31-Dec-92 9425 10000 31-Jan-93 9545 9999 28-Feb-93 9779 10301 31-Mar-93 10458 11199 30-Apr-93 10818 12261 31-May-93 11317 12520 30-Jun-93 11232 12325 31-Jul-93 11317 12757 31-Aug-93 12241 13445 30-Sep-93 12385 13143 31-Oct-93 12996 13548 30-Nov-93 12560 12363 31-Dec-93 13984 13256 31-Jan-94 14900 14377 28-Feb-94 14290 14337 31-Mar-94 13573 13720 30-Apr-94 13988 14302 31-May-94 13928 14220 30-Jun-94 13711 14420 31-Jul-94 14391 14559 31-Aug-94 15112 14904 30-Sep-94 14890 14434 31-Oct-94 15339 14915 30-Nov-94 14663 14198 31-Dec-94 14532 14287 31-Jan-95 13806 13738 28-Feb-95 14137 13699 31-Mar-95 14622 14553 30-Apr-95 15003 15101 31-May-95 15326 14866 30-Jun-95 15348 14659 31-Jul-95 15980 15572 31-Aug-95 15425 14978 30-Sep-95 15888 15270 31-Oct-95 15720 14860 30-Nov-95 15875 15273 31-Dec-95 16369 15888 31-Jan-96 16636 15954 29-Feb-96 16839 16008 31-Mar-96 17010 16348 30-Apr-96 17490 16823 31-May-96 17746 16513 30-Jun-96 18365 16606 31-Jul-96 17506 16121 31-Aug-96 18093 16156 30-Sep-96 18221 16585 31-Oct-96 18371 16416 30-Nov-96 19230 17069 31-Dec-96 19597 16849 31-Jan-97 19876 16260 28-Feb-97 20307 16525 31-Mar-97 20307 16585 30-Apr-97 20258 16673 31-May-97 21568 17758 30-Jun-97 22650 18738 31-Jul-97 23201 19041 31-Aug-97 21629 17619 30-Sep-97 23168 18606 31-Oct-97 21159 17176 30-Nov-97 21143 17000 31-Dec-97 21632 17149 31-Jan-98 21499 17933 28-Feb-98 22990 19084 31-Mar-98 24314 19671 30-Apr-98 24730 19827 31-May-98 24059 19731 30-Jun-98 23655 19880 31-Jul-98 24259 20082 31-Aug-98 20390 17594 30-Sep-98 19947 17054 31-Oct-98 21937 18832 30-Nov-98 23217 19797 31-Dec-98 23220 20578 31-Jan-99 23186 20517 28-Feb-99 22746 20028 31-Mar-99 23885 20864 30-Apr-99 25130 21710 31-May-99 24093 20592 30-Jun-99 24865 21394 31-Jul-99 25012 22030 31-Aug-99 25091 22111 30-Sep-99 25017 22333 31-Oct-99 25203 23170 30-Nov-99 25908 23975 31-Dec-99 28107 26127 31-Jan-00 25827 24467 29-Feb-00 26555 25125 31-Mar-00 27099 26099 30-Apr-00 25976 24726 31-May-00 26036 24122 30-Jun-00 27194 25065 31-Jul-00 25977 24014 31-Aug-00 26413 24223 30-Sep-00 24098 23043 31-Oct-00 23390 22499 30-Nov-00 22418 21655 31-Dec-00 23257 22425 31-Jan-01 23345 22433 28-Feb-01 21330 20755 30-Mar-01 19555 19346 30-Apr-01 20958 20674 31-May-01 20425 19909 30-Jun-01 19670 19091 31-Jul-01 19298 18801 31-Aug-01 18765 18324 30-Sep-01 16306 16468 31-Oct-01 17052 16890 30-Nov-01 18037 17513 31-Dec-01 18366 17617 31-Jan-2002 17505 16680 28-Feb-2002 17567 16798 31-Mar-2002 18454 17706 30-Apr-2002 18321 17823 31-May-2002 18250 18049 30-Jun-2002 17469 17331 31-Jul-2002 15498 15620 31-Aug-2002 15348 15584 30-Sep-2002 13448 13911 31-Oct-2002 14487 14658 30-Nov-2002 15454 15324 31-Dec-2002 14516 14808 The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets 1. United Kingdom 22% 2. Japan 16% 3. France 14% 4. Netherlands 9% 5. Switzerland 7% 6. Germany 5% 7. Spain 4% 8. Mexico 4% 9. Hong Kong 4% 10. Australia 4% 11. Finland 3% 12. South Korea 3% 13. Italy 3% 14. Taiwan 1% 15. Norway 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Financials 22% 2. Industrials 13% 3. Consumer Discretionary 12% 4. Materials 11% 5. Telecommunication Services 10% 6. Consumer Staples 9% 7. Information Technology 8% 8. Energy 6% 9. Healthcare 5% 10. Utilities 3% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Vodafone AirTouch plc 2.6% 2. GlaxoSmithKline plc 2.4% 3. Societe Generale 2.3% 4. HBOS plc 2.3% 5. BHP Ltd. 2.2% 6. UBS AG 2.2% 7. TotalFinaElf 2.1% 8. Unilever 2.0% 9. Rio Tinto plc 2.0% 10. BP Amoco plc 2.0% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 15 IVY INTERNATIONAL SMALL COMPANIES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTMENT IN FOREIGN EQUITY SECURITIES OF COMPANIES WITH A TOTAL MARKET CAPITALIZATION OF LESS THAN $2 BILLION. [PHOTO] Ivy International Small Companies Fund is sub-advised by Henderson Investment Management Limited's smaller companies team. The following is an interview with Simon Chisholm, Henderson's Associate Director of European Equities. He has led the team since September of 2002 and is responsible for the Fund's regional allocations. LIPPER CATEGORY International Small-Cap "Looking to the medium-term, we are still broadly positive but continue to be cautious about the outlook for smaller-capitalization stocks, as we believe that an improving global economic outlook will initially favor larger, more liquid stocks. In the longer term, however, we are optimistic about the chances for solid performance from the sector." Q: SIMON, HOW DID IVY INTERNATIONAL SMALL COMPANIES FUND PERFORM IN 2002? A: For 2002, Ivy International Small Companies Fund returned -29.51%, including the impact of the maximum sales charge, and -25.21% without the sales charge. The Fund underperformed its benchmark, the Salomon Smith Barney EMI World ex-US index, which returned -7.29%, and its peer group (as measured by the Lipper International Small-Cap Funds average), which returned -12.13%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: It was another difficult year for global equity markets, as concerns about global growth prospects and increasing political tensions between the US and Iraq encouraged investors to seek safety in government bonds. Throughout the year, smaller companies generally outperformed their larger counterparts, but performance was still largely negative. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Continental Europe continued to be the Fund's largest exposure throughout the year, and the region again proved to be a difficult environment for equity investors. In particular, growth stocks in Europe, an area in which the Fund has significant positions, performed poorly as valuations continued to decline. The Fund also suffered from its exposure to growth stocks in the UK, despite retaining an underweight position in this market. Following a period of strong performance in the early part of the year, the Fund's holding in Alliance Unichem, a UK pharmaceutical retailer, suffered as investors switched away from defensive sectors. Two other big negative contributors were Fitness First and the software company, Game Group, which fell sharply following unexpected profit warnings. In addition, holdings in Japan, a market in which we maintained an overweight throughout the year, also negatively impacted performance. Japan enjoyed a period of outperformance in the early part of the year, but ended 2002 with a difficult quarter that eroded much of this performance. Financial and cyclical stocks were hit hard as investors fled to the safety of more defensive sectors. Although Japanese smaller company stocks outperformed the overall market, the Fund suffered from a number of stock-specific events. For example, Konami Sports, Japan's largest fitness group and a Fund holding, saw persistent poor performance due to ongoing weak data for the stock. We later sold the stock and added to Tokyo Style, a cash-rich apparel maker that has recently become more shareholder-friendly. Q: WHAT CHANGES WERE MADE TO THE PORTFOLIO OVER THE YEAR? A: In an effort to increase the diversification of the portfolio, we entered into the Austrian market via Telekom Austria and took positions in Greece based on the expectation that the region will benefit from hosting the 2004 Olympic Games. We also took positions in the Scandinavian market via Swedish Match (tobacco) and Instrumentarium, a Finnish medical technology company. In addition, we established an exposure to what we see as a relatively low-risk and attractively valued market in New Zealand, purchasing a stake in Fisher & Paykel Appliances, a household appliance distributor. Q: WHAT IS YOUR OUTLOOK FOR 2003? A: Moving into 2003, our short-term outlook is that equities may be weaker as concerns continue to grow about the growing threat of war with Iraq. Looking to the medium-term, we are still broadly positive but continue to be cautious about the outlook for smaller-capitalization stocks, as we believe that an improving global economic outlook will initially favor larger, more liquid stocks. In the longer term, however, we are optimistic about the chances for solid performance from the sector. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. 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. 16 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- -------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (29.51)% (6.93)% N/A (7.88)% IYSAX w/o Reimb. & 5.75% sales charge (31.24)% (9.66)% N/A (10.41)% B SHARES w/Reimb. & w/ 5.00% CDSC (29.46)% (6.88)% N/A (7.81)% IYSBX w/Reimb. & w/o 5.00% CDSC (25.75)% (6.50)% N/A (7.65)% w/o Reimb. & w/ 5.00% CDSC (31.24)% (9.58)% N/A (10.25)% w/o Reimb. & w/o 5.00% CDSC (27.61)% (9.21)% N/A (10.10)% C SHARES w/Reimb. & w/ 1.00% CDSC (26.37)% (6.45)% N/A (7.60)% IYSCX w/Reimb. & w/o 1.00% CDSC (25.62)% (6.45)% N/A (7.60)% w/o Reimb. & w/ 1.00% CDSC (28.20)% (9.33)% N/A (10.24)% w/o Reimb. & w/o 1.00% CDSC (27.47)% (9.33)% N/A (10.24)% ADVISOR SHARES w/Reimb. (24.91)% N/A N/A (11.85)% IYSVX w/o Reimb. (26.72)% N/A N/A (14.05)% CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations January 1, 1997; Advisor Class commenced operations July 1, 1999. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 International Small Companies Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (1/97) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy Salomon International Smith Barney Small EMI World Companies ex-US Fund Index ------------- ------------ 02-Jan-97 9425 10000 31-Jan-97 9585 9784 28-Feb-97 9566 9948 31-Mar-97 9510 9817 30-Apr-97 9331 9670 31-May-97 9548 10290 30-Jun-97 9783 10522 31-Jul-97 9849 10363 31-Aug-97 9274 9921 30-Sep-97 9472 10097 31-Oct-97 8803 9698 30-Nov-97 8369 9265 31-Dec-97 8245 9060 31-Jan-98 8369 9438 28-Feb-98 8997 10142 31-Mar-98 9682 10619 30-Apr-98 9701 10700 31-May-98 9502 10899 30-Jun-98 9102 10581 31-Jul-98 8873 10508 31-Aug-98 7674 9220 30-Sep-98 7740 8980 31-Oct-98 8092 9614 30-Nov-98 8616 9922 31-Dec-98 8677 10162 31-Jan-99 8124 10131 28-Feb-99 8502 9934 31-Mar-99 8764 10307 30-Apr-99 9385 10864 31-May-99 9162 10580 30-Jun-99 9540 10941 31-Jul-99 9782 11350 31-Aug-99 9695 11525 30-Sep-99 9559 11498 31-Oct-99 9588 11383 30-Nov-99 10596 11772 31-Dec-99 12100 12548 31-Jan-2000 12547 12238 29-Feb-2000 14481 12751 31-Mar-2000 14491 12802 30-Apr-2000 13733 12022 31-May-2000 13130 11814 30-Jun-2000 13898 12579 31-Jul-2000 14190 12148 31-Aug-2000 14977 12522 30-Sep-2000 14666 11918 31-Oct-2000 13743 11262 30-Nov-2000 12732 10801 31-Dec-2000 12697 11254 31-Jan-2001 12967 11364 28-Feb-2001 12048 10925 31-Mar-2001 10579 10061 30-Apr-2001 10969 10779 31-May-2001 11069 10754 30-Jun-2001 9620 10369 31-Jul-2001 8971 10097 31-Aug-2001 8761 10062 30-Sep-2001 7463 8770 31-Oct-2001 8002 9131 30-Nov-2001 8202 9481 31-Dec-2001 8170 9494 31-Jan-2002 7800 9276 28-Feb-2002 7590 9449 31-Mar-2002 8060 10064 30-Apr-2002 8270 10267 31-May-2002 8480 10650 30-Jun-2002 7890 10265 31-Jul-2002 7200 9368 31-Aug-2002 6900 9303 30-Sep-2002 6050 8457 31-Oct-2002 5890 8614 30-Nov-2002 6140 8926 31-Dec-2002 6110 8801 The Salomon Smith Barney EMI World ex-US 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets 1. Japan 22% 2. United Kingdom 11% 3. Spain 11% 4. Switzerland 7% 5. France 6% 6. Netherlands 5% 7. Italy 5% 8. Australia 4% 9. Austria 4% 10. Germany 4% 11. Belgium 4% 12. Hong Kong 3% 13. Ireland 3% 14. Finland 3% 15. South Korea 2% 16. Greece 2% 17. Sweden 2% 18. New Zealand 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Consumer Discretionary 24% 2. Industrials 18% 3. Consumer Staples 13% 4. Healthcare 11% 5. Information Technology 11% 6. Financials 10% 7. Materials 7% 8. Utilities 4% 9. Energy 1% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets --------------------- 1. Baron de Ley, S.A. 2.6% 2. Kobayashi Pharmaceutical Co. 2.6% 3. OBIC Co., Ltd. 2.5% 4. KOA Corporation 2.5% 5. Mitsubishi Securities Co., Ltd. 2.5% 6. Tokyo Style Co., Ltd. 2.5% 7. ASATSU-DK Inc. 2.4% 8. Taiyo Ink Mfg. Co., Ltd. 2.4% 9. Enterprise Inns plc 2.3% 10. Tokyo Steel Manufacturing Co. 2.1% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 17 IVY INTERNATIONAL VALUE FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTING IN EQUITY SECURITIES TRADED IN EUROPE, THE FAR EAST AND LATIN AMERICA. [PHOTO] Note: Ivy International Value Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy International Value Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY International "We will continue to focus on what we believe are companies with impressive management, good cash flow, attractive dividend yields and strong balance sheets in situations where we believe the companies' underlying assets are undervalued." Q: MOIRA, HOW DID IVY INTERNATIONAL VALUE FUND PERFORM IN 2002? A: For 2002, Ivy International Value Fund returned -20.77%, including the impact of the maximum sales charge, and -15.93% without the sales charge. This compares to the Fund's benchmark, the MSCI EAFE Index, which returned -15.94%, and its peer group (as measured by the Lipper International Funds average), which returned -16.67%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Market conditions were exceptionally volatile. Value stocks continued to outperform the broader market through the first half of the year. However, in the third quarter, market leadership shifted, with value stocks underperforming for the first time since the beginning of the bear market. This shift in leadership was largely due to the predominance of financials and industrials (both sectors that performed particularly poorly during the quarter) in the value universe. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: The Fund's French holdings made the largest positive contribution. In addition to consumer holdings, which performed strongly, performance benefited from outsized exposure to French banks. In contrast to the money-center banks and the European insurers, French banks performed well. An overweight position in basic materials also made a positive contribution. Commodity prices changed course in 2002 after sharp declines in 2001, contributing to strong performance for many stocks in this sector. The Fund's positions in commodity producers realized solid gains. To help offset volatility, we also maintained a substantial overweight in consumer staples, which helped performance. Unfortunately, what we got right in 2002 was largely offset by what we got wrong. A combination of poor stock selection in Japan and an underweight in that market hurt performance. Throughout the year, we maintained the underweight position in Japan based on our belief that periodic market rallies would be short-lived, as we felt little was being done to address the country's underlying structural problems. Despite the host of problems the Japanese economy faces, its stock market proved considerably more resilient than other major markets in 2002. Q: THOMAS, WHAT IS YOUR STRATEGY GOING FORWARD? A: In mid-2002, the Fund responded to higher financial market uncertainties by focusing on higher quality companies that were still reasonably priced. Going forward, we will continue to focus on what we believe are companies with impressive management, good cash flow, attractive dividend yields and strong balance sheets in situations where we believe the companies' underlying assets are undervalued. Q: What is your outlook for 2003? A: Global equity markets are expected to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. Despite a high level of financial market uncertainty early in the year, we feel that consensus earnings expectations need to be reduced further. Corporations are facing higher operating costs, but generally cannot raise output prices. Questions remain regarding U.S. employment and consumer sentiment, which is a critical end-market for much of the world's exports. Consumer demand is extremely weak in core Europe, and appears to be finally moderating in the faster-pace economies of Britain, Canada, South Korea and Australia where, as in the United States, spectacular housing demand has been a significant economic boost. We believe there is some potential for further interest rate cuts, especially in Continental Europe where economic growth has stalled and inflation trends could potentially improve before mid-year. Asian economies are relatively better positioned for domestic growth, and regional trade remains impressive. Weak capital spending plans are restraining global growth, a combined result of excess high-tech capacity and Iraqi war concerns. There is hope that visibility will soon improve for these two important business and sentiment issues. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 18 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (20.77%) (3.67%) N/A (5.11%) IVIAX w/o Reimb. & 5.75% sales charge (21.26%) (3.97%) N/A (5.37%) B SHARES w/Reimb. & w/ 5.00% CDSC (22.48%) (4.07%) N/A (5.38%) IIFBX w/Reimb. & w/o 5.00% CDSC (18.39%) (3.68%) N/A (5.21%) w/o Reimb. & w/ 5.00% CDSC (22.97%) (4.37%) N/A (5.64%) w/o Reimb. & w/o 5.00% CDSC (18.91%) (3.99%) N/A (5.48%) C SHARES w/Reimb. & w/ 1.00% CDSC (19.21%) (3.69%) N/A (5.22%) IVIFX w/Reimb. & w/o 1.00% CDSC (18.39%) (3.69%) N/A (5.22%) w/o Reimb. & w/ 1.00% CDSC (19.72%) (4.00%) N/A (5.49%) w/o Reimb. & w/o 1.00% CDSC (18.91%) (4.00%) N/A (5.49%) ADVISOR SHARES w/Reimb. (17.51%) N/A N/A (4.08%) IVIVX w/o Reimb. (18.02%) N/A N/A (4.45%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations May 13, 1997; Advisor Class commenced operations February 23, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 International Value Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (5/97) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy International MSCI Value EAFE Fund Index ------------- ----- 13-May-97 9425 10000 31-May-97 9538 10651 30-Jun-97 9660 11238 31-Jul-97 9896 11420 31-Aug-97 9001 10567 30-Sep-97 9604 11159 31-Oct-97 8615 10301 30-Nov-97 8427 10196 31-Dec-97 8455 10285 31-Jan-98 8540 10756 28-Feb-98 9256 11446 31-Mar-98 9783 11798 30-Apr-98 9868 11892 31-May-98 9783 11834 30-Jun-98 9472 11923 31-Jul-98 9434 12044 31-Aug-98 7806 10552 30-Sep-98 7740 10229 31-Oct-98 8427 11295 30-Nov-98 9001 11874 31-Dec-98 9016 12342 31-Jan-99 8940 12305 28-Feb-99 8854 12012 31-Mar-99 9225 12514 30-Apr-99 10062 13021 31-May-99 9700 12350 30-Jun-99 10043 12832 31-Jul-99 10224 13213 31-Aug-99 10290 13261 30-Sep-99 10138 13395 31-Oct-99 10185 13896 30-Nov-99 10490 14379 31-Dec-99 11521 15670 31-Jan-2000 10599 14674 29-Feb-2000 10676 15069 31-Mar-2000 11127 15653 30-Apr-2000 10695 14830 31-May-2000 10551 14467 30-Jun-2000 11050 15033 31-Jul-2000 10791 14403 31-Aug-2000 10877 14528 30-Sep-2000 10301 13821 31-Oct-2000 10157 13494 30-Nov-2000 10022 12988 31-Dec-2000 10686 13450 31-Jan-2001 10647 13454 28-Feb-2001 10016 12448 31-Mar-2001 9181 11603 30-Apr-2001 9706 12399 31-May-2001 9618 11941 30-Jun-2001 9346 11450 31-Jul-2001 9123 11276 31-Aug-2001 9094 10990 30-Sep-2001 7929 9877 31-Oct-2001 8182 10130 30-Nov-2001 8648 10503 31-Dec-2001 8851 10566 31-Jan-2002 8423 10004 28-Feb-2002 8432 10075 31-Mar-2002 8860 10620 30-Apr-2002 8929 10690 31-May-2002 9036 10825 30-Jun-2002 8763 10394 31-Jul-2002 7761 9368 31-Aug-2002 7791 9347 30-Sep-2002 6769 8343 31-Oct-2002 7188 8792 30-Nov-2002 7703 9191 31-Dec-2002 7440 8882 The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) 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. Past performance does not guarantee future results. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets 1. United Kingdom 20% 2. Japan 15% 3. France 10% 4. Switzerland 9% 5. Germany 9% 6. Netherlands 6% 7. South Korea 4% 8. Australia 4% 9. Hong Kong 4% 10. Spain 4% 11. Italy 4% 12. Mexico 3% 13. Brazil 2% 14. Ireland 2% 15. Finland 2% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Financials 26% 2. Industrials 13% 3. Consumer Discretionary 11% 4. Materials 10% 5. Consumer Staples 9% 6. Energy 8% 7. Telecommunication Services 8% 8. Information Technology 5% 9. Utilities 4% 10. Healthcare 4% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Vodafone AirTouch plc 2.9% 2. ENI S.p.A. 2.6% 3. Rio Tinto plc 2.5% 4. Canon Inc. 2.5% 5. BHP Ltd. 2.4% 6. Schneider SA 2.3% 7. Novartis AG 2.2% 8. Bank of Ireland 2.2% 9. Societe Generale 2.2% 10. UBS AG 2.1% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 19 IVY PACIFIC OPPORTUNITIES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN SECURITIES TRADED IN PACIFIC REGION MARKETS. EXAMPLES OF PACIFIC REGION COUNTRIES INCLUDE AUSTRALIA, CHINA, HONG KONG, INDIA, KOREA, SINGAPORE, SRI LANKA AND TAIWAN. [PHOTO] Note: Ivy Pacific Opportunities Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Pacific Opportunities Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Pacific ex-Japan "We feel that Asian economies are better positioned for domestic growth than many other markets, and regional trade remains impressive. We believe that our refocusing of the Fund will allow us to take better advantage of investment opportunities in the region as we move forward." Q: MOIRA, HOW DID IVY PACIFIC OPPORTUNITIES FUND PERFORM IN 2002? A: For 2002, Ivy Pacific Opportunities Fund returned -16.41%, including the impact of the maximum sales charge, and -11.31% without the sales charge. The Fund underperformed its benchmark, the MSCI Asia Pacific Free Ex-Japan index, which returned -5.09%, and its peer group (as measured by the Lipper Pacific Ex-Japan Funds average), which returned -7.98%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: While ex-Japan Asia was a relative outperformer in 2002, most regional stock markets finished the year in negative territory. Stocks were depressed by sluggish economic growth and turmoil in the US and European markets. The major Asian markets fell heavily, with Hong Kong, Singapore and Taiwan all posting double-digit declines. However, a number of the smaller, more speculative markets posted gains. Despite a sharp sell-off after the Bali disco bombing, the Indonesia market ended the year in positive territory. The Thai market gained around 17% and the Pakistani market was up over 100%. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: An overweight position in Taiwanese technology stocks had a negative impact on performance. These stocks performed strongly in the last quarter of 2001 and into the first quarter of 2002. However, they then sold off sharply as investors worried about a recovery in end-user demand. While we locked in some gains early in the year, performance suffered from not cutting the Fund's exposure further than we did. The Fund's exposure to Hong Kong financials also hurt performance. Interest rate sensitive stocks in Hong Kong -- banks and property stocks -- came under pressure as investors worried that an Argentine-style default in Brazil would prove the final blow to the Hong Kong dollar's peg to the US currency. Stock selection in Australia made the most significant positive contribution to performance. As commodity prices recovered from the sharp declines of 2001, the Fund benefited from overweight positions in commodity producers. The Fund also benefited from exposure to Australian banks, which did not suffer the credit-quality problems plaguing other developed-market banks. In South Korea, performance benefited from both an overweight position and good stock selection. The Korean market performed well due to financial sector reform, attractive valuations and strong growth in domestic consumption. Korean exporters also posted solid gains as a result, in part, of strong demand from China. Q: THOMAS, WHAT IS YOUR STRATEGY GOING FORWARD? A: The Fund will likely be less concentrated in the future, as we increase the number of holdings and thereby reduce the average weighting of each stock. Along with this broader dispersion, we will reduce exposure to the technology sector in an effort to reduce volatility. We intend to concentrate on the core Asian markets of Hong Kong, China, South Korea, Australia and Taiwan, with particular focus on industry leaders that we believe benefit most from the continued Chinese dominance of business demand in the region. During our gradual process of restructuring this Fund its cash position may be slightly higher than what we would consider normal, but only until the transition is completed. Q: WHAT IS YOUR OUTLOOK FOR THE REGION? A: Global equity markets are expected to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. However, we feel that Asian economies are better positioned for domestic growth than many other markets, and regional trade remains impressive. We believe that our refocusing of the Fund will allow us to take better advantage of investment opportunities in the region as we move forward. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 20 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (16.41%) (6.29%) N/A (5.41%) IPOAX w/o Reimb. & 5.75% sales charge (17.56%) (7.25%) N/A (6.10%) B SHARES w/Reimb. & w/ 5.00% CDSC (16.73%) (6.43%) N/A (5.60%) IPOBX w/Reimb. & w/o 5.00% CDSC (12.35%) (6.05%) N/A (5.60%) w/o Reimb. & w/ 5.00% CDSC (17.92%) (7.36%) N/A (6.27%) w/o Reimb. & w/o 5.00% CDSC (13.59%) (6.98%) N/A (6.27%) C SHARES w/Reimb. & w/ 1.00% CDSC (13.09%) (5.97%) N/A (6.84%) IPOCX w/Reimb. & w/o 1.00% CDSC (12.21%) (5.97%) N/A (6.84%) w/o Reimb. & w/ 1.00% CDSC (14.33%) (6.90%) N/A (7.56%) w/o Reimb. & w/o 1.00% CDSC (13.46%) (6.90%) N/A (7.56%) ADVISOR SHARES w/Reimb. (11.84%) N/A N/A (5.41%) IPOVX w/o Reimb. (13.08%) N/A N/A (6.18%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. 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 in some periods were higher due to reimbursement of certain Fund expenses. 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 Pacific Opportunities Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (10/93) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) IVY PACIFIC MSCI ASIA PACIFIC FREE OPPORTUNITIES FUND (EXCLUDING JAPAN) INDEX 25-Oct-93 9425 10000 31-Oct-93 9652 10000 30-Nov-93 9685 9788 31-Dec-93 10900 11878 31-Jan-94 10426 11493 28-Feb-94 9837 10977 31-Mar-94 9011 9872 30-Apr-94 9111 10255 31-May-94 9392 10669 30-Jun-94 8905 10269 31-Jul-94 9309 10799 31-Aug-94 9647 11597 30-Sep-94 9624 11303 31-Oct-94 9431 11519 30-Nov-94 8620 10622 31-Dec-94 8188 10419 31-Jan-95 7289 9471 28-Feb-95 7760 10150 31-Mar-95 7927 10137 30-Apr-95 7732 10191 31-May-95 8452 11021 30-Jun-95 8352 10858 31-Jul-95 8825 11218 31-Aug-95 8506 10843 30-Sep-95 8722 10937 31-Oct-95 8545 10753 30-Nov-95 8244 10600 31-Dec-95 8318 11053 31-Jan-96 9247 11792 29-Feb-96 9189 11969 31-Mar-96 9044 12035 30-Apr-96 9160 12486 31-May-96 9209 12342 30-Jun-96 9121 12136 31-Jul-96 8782 11341 31-Aug-96 8966 11758 30-Sep-96 9063 11924 31-Oct-96 9131 11840 30-Nov-96 9731 12378 31-Dec-96 10023 12339 31-Jan-97 9935 12457 28-Feb-97 10081 12588 31-Mar-97 9682 12006 30-Apr-97 10198 11926 31-May-97 10967 12413 30-Jun-97 11356 12866 31-Jul-97 11736 12930 31-Aug-97 11463 10924 30-Sep-97 11210 11004 31-Oct-97 8495 8795 30-Nov-97 7970 8296 31-Dec-97 7824 8119 31-Jan-98 6529 7750 28-Feb-98 7989 8924 31-Mar-98 7795 8829 30-Apr-98 7191 8238 31-May-98 6267 7209 30-Jun-98 5498 6634 31-Jul-98 5060 6527 31-Aug-98 4350 5596 30-Sep-98 4953 6071 31-Oct-98 6053 7133 30-Nov-98 6286 7668 31-Dec-98 6215 7760 31-Jan-99 5732 7832 28-Feb-99 5653 7672 31-Mar-99 6176 8377 30-Apr-99 7320 9700 31-May-99 7162 9294 30-Jun-99 8692 10464 31-Jul-99 8366 10302 31-Aug-99 8484 10335 30-Sep-99 7991 9796 31-Oct-99 8090 9974 30-Nov-99 8800 10812 31-Dec-99 9119 11627 31-Jan-00 9009 11467 29-Feb-00 8631 11219 31-Mar-00 9488 11404 30-Apr-00 8969 10538 31-May-00 8551 9750 30-Jun-00 9189 10454 31-Jul-00 9448 9969 31-Aug-00 9169 9928 30-Sep-00 8312 8948 31-Oct-00 7485 8276 30-Nov-00 7116 8083 31-Dec-00 7455 8143 31-Jan-01 8198 9021 28-Feb-01 7565 8599 31-Mar-01 6932 7646 30-Apr-01 6993 7870 31-May-01 6832 7858 30-Jun-01 6731 7786 31-Jul-01 6450 7477 31-Aug-01 6219 7407 30-Sep-01 5174 6306 31-Oct-01 5566 6707 30-Nov-01 6279 7499 31-Dec-01 6762 7945 31-Jan-2002 6883 8178 28-Feb-2002 6984 8234 31-Mar-2002 7225 8710 30-Apr-2002 7346 8744 31-May-2002 7316 8765 30-Jun-2002 6994 8339 31-Jul-2002 6611 7910 31-Aug-2002 6460 7893 30-Sep-2002 5847 7188 31-Oct-2002 6128 7565 30-Nov-2002 6420 7891 31-Dec-2002 5998 7541 The Morgan Stanley Capital International (MSCI) Asia Pacific 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets 1. Australia 27% 2. South Korea 22% 3. Hong Kong 21% 4. Taiwan 11% 5. Singapore 7% 6. India 7% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Financials 27% 2. Materials 16% 3. Information Technology 15% 4. Consumer Discretionary 13% 5. Consumer Staples 9% 6. Telecommunication Services 8% 7. Industrials 7% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. POSCO 5.8% 2. BHP Limited 4.9% 3. Rio Tinto Ltd. 4.9% 4. Westpac Banking Corp. Ltd. 4.6% 5. Samsung Electronics 4.4% 6. Hyundai Motor Co., Ltd. 4.4% 7. Australia & New Zealand Banking 4.3% 8. Hero Honda Motors Ltd. 4.1% 9. Cathay Pacific Airways 4.0% 10. Sun Hung Kai Properties Ltd. 3.7% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 21 IVY GROWTH FUND The Fund's goal: to provide long-term capital growth by investing in US companies of any size. [PHOTO] Note: Ivy Growth Fund utilized a dual management approach until December 16th, 2002. The large-cap portion was managed by Paul Baran, while the small/mid-cap portion was managed by James W. Broadfoot. At right, they discuss factors relating to Fund performance in 2002. Antonio Intagliata, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Growth Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Multi-Cap Growth "After a detailed analysis of the portfolio, we decided to: (1) significantly reduce the number of holdings so that each stock would have more of an impact on the Fund, and (2) select fewer small-cap stocks and a greater amount of medium- and large-cap stocks." Q: HOW DID IVY GROWTH FUND PERFORM IN 2002? A: For 2002, Ivy Growth Fund returned -32.78%,including the impact of the maximum sales charge, and -28.68% without the sales charge. The Fund underperformed its bench-mark, the Russell 3000 Growth Index, which returned -28.03%,and its peer group (as measured by the Lipper Multi-Cap Growth Funds average), which returned -29.92%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: WHAT FACTORS AFFECTED PERFORMANCE OVER THE PERIOD? A: Until mid-December, the Fund was divided into two portions: one consisting of small/mid-cap stocks, and the other consisting of large-cap stocks. Performance in the large-cap portion was negatively affected by holdings in the technology sector. However, losses in technology were offset to a degree by exposure to banks and other financial stocks, many of which rose in price during the period. Certain consumer stocks also increased in price, while others declined but still outperformed the market. This had a large positive impact on relative performance. Our stock picks in the general energy area also had a positive effect on performance. Performance in the small/mid-cap portion was negatively affected by our focus on stocks with higher expected growth rates and price-to-earnings ratios, which underperformed more conservative, slower-growth stocks last year. Specifically, minimal exposure to slower-growth areas such as finance, consumer staples and materials, all of which outperformed, hurt the portfolio. An underweight in the top-performing financials sector had the largest negative effect. Holdings in healthcare and business services also negatively affected performance. The portfolio's consumer-related holdings did well as they benefited from strong consumer demand throughout most of the year. In addition, select holdings in network security, waste management and natural gas contributed positively to relative performance. Q: TONY, HOW ARE YOU POSITIONING THE PORTFOLIO GOING FORWARD? A: After a detailed analysis of the portfolio, we decided to: (1) significantly reduce the number of holdings so that each stock would have more of an impact on the Fund, and (2) select fewer small-cap stocks and a greater amount of medium- and large-cap stocks. In terms of sectors, while geopolitical considerations continue to make gold and energy the two focus areas, we believe the next leadership will come from the cyclical groups. Due to our economic and market outlook -- a weak economy, sluggish capital spending, and modest GDP growth and equity returns -- we favor a large exposure to healthcare, based on the sector's demographics and pricing power. We also favor defense stocks. We believe that defense spending will likely continue at a lower pace than 2002. However, the defense cycle is a long-term cycle and we believe the stocks are attractive fundamentally and on a price basis. They have visible earnings growth and have corrected recently. We have underweighted technology, but not by a huge amount. In technology, fundamentals are still poor, but the sector seems over-sold on a technical basis. Oil is a risky area, but we believe that an average weight makes sense, based on a tight supply and, eventually, an increasing global demand. Particular emphasis should be in the natural gas area. Financials will continue to be de-emphasized as, if expected, interest rates move up later in the year. We believe that these strategies have the Fund well-positioned for the year ahead. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 22 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb.& 5.75% sales charge (32.78%) (9.44%) 1.02% 8.26% IVYFX w/o Reimb.& 5.75% sales charge (32.78%) (9.44%) 1.00% 8.26% B SHARES w/Reimb.& w/5.00% CDSC (32.96%) (9.62%) N/A (0.22%) IVYBX w/Reimb.& w/o 5.00% CDSC (29.43%) (9.26%) N/A (0.22%) w/o Reimb.& w/5.00% CDSC (32.96%) (9.62%) N/A (0.24%) w/o Reimb.& w/o 5.00% CDSC (29.43%) (9.26%) N/A (0.24%) C SHARES w/Reimb.& w/ 1.00% CDSC (30.29%) (9.23%) N/A (4.97%) IVYCX w/Reimb.& w/o 1.00% CDSC (29.59%) (9.23%) N/A (4.97%) w/o Reimb.& w/1.00% CDSC (30.29%) (9.23%) N/A (4.97%) w/o Reimb.& w/o 1.00% CDSC (29.59%) (9.23%) N/A (4.97%) ADVISOR SHARES w/Reimb. (28.67%) N/A N/A (11.55%) IVYVX w/o Reimb. (28.67%) N/A N/A (11.55%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations January 12,1960; Class B commenced operations October 22,1993; Class C commenced operations April 30,1996;Advisor Class commenced operations April 30,1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 Growth Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW 10-Year Performance Comparison of a $10,000 Investment in the Fund (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy Growth Fund-- $11,066 Russell 3000 Growth Index-- $18,414 Ivy Growth Russell 3000 Fund Growth Index 31-Dec-92 9425 10000 31-Jan-93 9469 9902 28-Feb-93 9356 9718 31-Mar-93 9677 9910 30-Apr-93 9381 9519 31-May-93 9683 9869 30-Jun-93 9670 9787 31-Jul-93 9658 9634 31-Aug-93 10186 10034 30-Sep-93 10066 9994 31-Oct-93 10363 10272 30-Nov-93 10207 10174 31-Dec-93 10583 10369 31-Jan-94 11033 10612 28-Feb-94 10824 10432 31-Mar-94 10210 9915 30-Apr-94 10315 9960 31-May-94 10380 10077 30-Jun-94 9890 9767 31-Jul-94 10320 10082 31-Aug-94 10925 10662 30-Sep-94 10646 10535 31-Oct-94 10739 10769 30-Nov-94 10156 10416 31-Dec-94 10269 10598 31-Jan-95 10189 10779 28-Feb-95 10596 11236 31-Mar-95 10849 11564 30-Apr-95 11087 11810 31-May-95 11451 12197 30-Jun-95 11772 12703 31-Jul-95 12390 13277 31-Aug-95 12452 13308 30-Sep-95 12833 13885 31-Oct-95 12442 13823 30-Nov-95 12898 14367 31-Dec-95 13076 14473 31-Jan-96 13482 14896 29-Feb-96 13779 15208 31-Mar-96 13966 15256 30-Apr-96 14466 15735 31-May-96 14575 16312 30-Jun-96 14341 16218 31-Jul-96 13295 15161 31-Aug-96 13896 15624 30-Sep-96 14646 16727 31-Oct-96 14568 16745 30-Nov-96 15309 17926 31-Dec-96 15328 17640 31-Jan-97 15932 18800 28-Feb-97 15406 18578 31-Mar-97 14689 17546 30-Apr-97 14767 18591 31-May-97 16251 20051 30-Jun-97 16761 20843 31-Jul-97 17831 22612 31-Aug-97 17184 21475 30-Sep-97 18107 22599 31-Oct-97 17020 21708 30-Nov-97 16968 22482 31-Dec-97 17120 22710 31-Jan-98 17024 23295 28-Feb-98 18428 25075 31-Mar-98 19322 26079 30-Apr-98 19582 26421 31-May-98 19034 25562 30-Jun-98 19361 27011 31-Jul-98 18688 26648 31-Aug-98 15225 22472 30-Sep-98 16062 24240 31-Oct-98 17014 26135 30-Nov-98 18515 28126 31-Dec-98 19526 30663 31-Jan-99 20076 32432 28-Feb-99 18838 30841 31-Mar-99 19654 32428 30-Apr-99 20371 32664 31-May-99 19889 31739 30-Jun-99 21156 33920 31-Jul-99 20764 32844 31-Aug-99 20960 33252 30-Sep-99 20970 32644 31-Oct-99 22247 34995 30-Nov-99 23474 37004 31-Dec-99 25748 41034 31-Jan-00 25039 39221 29-Feb-00 27910 41671 31-Mar-00 29038 44028 30-Apr-00 26050 41763 31-May-00 24214 39554 30-Jun-00 27085 42692 31-Jul-00 25667 40781 31-Aug-00 28201 44513 30-Sep-00 25667 40436 31-Oct-00 23621 38427 30-Nov-00 19099 32675 31-Dec-00 20004 31836 31-Jan-01 21059 34062 28-Feb-01 18015 28358 31-Mar-01 16425 25309 30-Apr-01 18429 28502 31-May-01 18242 28162 30-Jun-01 17841 27621 31-Jul-01 17026 26813 31-Aug-01 15678 24654 30-Sep-01 13634 22091 31-Oct-01 14316 23310 30-Nov-01 15437 25530 31-Dec-01 15517 25588 31-Jan-2002 15103 25104 28-Feb-2002 14140 24023 31-Mar-2002 14982 24937 30-Apr-2002 13940 23005 31-May-2002 13512 22391 30-Jun-2002 12483 20331 31-Jul-2002 11414 19075 31-Aug-2002 11481 19128 30-Sep-2002 10532 17182 31-Oct-2002 11280 18712 30-Nov-2002 11788 19781 31-Dec-2002 11066 18414 The Russell 3000 Growth 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Healthcare 16% 2. Information Technology 14% 3. Financials 12% 4. Consumer Discretionary 10% 5. Industrials 10% 6. Energy 6% 7. Consumer Staples 6% 8. Telecommunication Services 1% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. S&P 500 Depository Receipts 3.0% 2. Microsoft Corporation 2.2% 3. General Electric Company 1.9% 4. Wal-Mart Stores, Inc. 1.9% 5. Cisco Systems, Inc. 1.6% 6. Pfizer Inc. 1.6% 7. Exxon Mobil Corporation 1.5% 8. American International Group 1.3% 9. International Business Machines 1.1% 10. Merck & Co., Inc. 1.1% The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be representative of the Fund's current or future investments. 23 IVY US BLUE CHIP FUND The Fund's goal: to provide long-term capital growth primarily by investing in common stocks of established domestic companies that either hold a leading industry position or that are expected to do so in the future. [PHOTO] An interview with Paul Baran, portfolio manager of the Ivy US Blue Chip Fund. NOTE: EFFECTIVE FEBRUARY 2003, IVY US BLUE CHIP FUND WILL BE MANAGED BY JIM WINELAND OF WADDELL & Reed Ivy Investment Company. LIPPER CATEGORY Large-Cap Core "We believe that most, if not all, of the corporate excesses have been wrung out after three years of declines. We think we'll see higher earnings growth and modest GDP growth in the year ahead." Q: PAUL, HOW DID IVY US BLUE CHIP FUND PERFORM IN 2002? A: For 2002, Ivy US Blue Chip Fund returned -26.29%,including the impact of the maximum sales charge, and -21.79% without the sales charge. This compares to the Fund's benchmark, the S&P 500 Index, which returned -22.10%,and its peer group (as measured by the Lipper Large-Cap Core Funds average), which returned -23.48%. It should be noted that the benchmark index and the Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Last year saw a continuation of the bear market that began in early 2000, and it also marked the first time since 1939 that the US experienced three consecutive years of declining markets. Weak economic conditions and the boom in financial fraud negatively affected corporate earnings, which, in turn, caused the market to reprice itself lower. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Given the challenging market environment, we took steps to help reduce risk and improve performance. First, we increased the number of holdings in an effort to minimize the effect of any individual stock. Second, we actively traded by taking gains when appropriate and making purchases when we felt stocks were unfairly punished. These strategies, combined with our avoidance of "disaster stocks" in high-profile companies that experienced financial scandals, were the primary factors driving performance. Unfortunately, the Fund still showed a negative return for the year, with performance impacted by a few factors. Investments in the technology sector had the largest negative effect. Holdings such as Texas Instruments, Applied Materials and Intel all declined further than the market. AOL Time Warner also hurt performance, as did Home Depot, Schering-Plough and Bristol Myers. On the positive side, performance benefited from holdings in the banking sector, many of which rose in price during the period. Certain consumer stocks, such as Procter & Gamble and Anheuser Busch, also increased in price, while others -- Wal-Mart, PepsiCo and Philip Morris -- declined but still outperformed the market. This had a large positive impact on performance relative to the benchmark. In addition, underexposure to the troubled electricity merchant-area helped performance, as did our stock picks in the general energy area. Q: WHAT CHANGES WERE MADE TO THE PORTFOLIO? A: Throughout the year, we increased exposure to defense-related companies, many of which did well in anticipation of a possible war with Iraq. Lockheed Martin and United Technologies both outperformed the market and contributed positively to performance. In terms of general strategy, we adhered to our long-term approach of staying fully invested and sector-neutral. Our focus remained on stock selection and, unlike many of the Fund's competitors, Ivy US Blue Chip Fund did not hold large amounts of cash. Q: WHAT IS YOUR OUTLOOK GOING FORWARD? A: We are optimistic as we enter 2003. Interest rates are unlikely to rise, and we believe that most, if not all, of the corporate excesses have been wrung out after three years of declines. We think we'll see higher earnings growth and modest GDP growth in the year ahead. In our opinion, all of these factors, as well as recent government proposals for tax reform, could lead to better equity returns in 2003. As markets settle during the year, we may reduce the number of holdings and increase our weightings on attractive stocks. We also intend to continue to stay fully invested, sector-neutral and focused on stock selection. In our view, these steps have the Fund well positioned for 2003. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. 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. 24 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb.& 5.75% sales charge (26.29%) N/A N/A (8.07%) IBCAX w/o Reimb.& 5.75% sales charge (26.67%) N/A N/A (8.79%) B SHARES w/Reimb.& w/ 5.00% CDSC (26.27%) N/A N/A (8.53%) IBCBX w/Reimb.& w/o 5.00% CDSC (22.39%) N/A N/A (8.08%) w/o Reimb.& w/ 5.00% CDSC (26.66%) N/A N/A (9.27%) w/o Reimb.& w/o 5.00% CDSC (22.79%) N/A N/A (8.80%) C SHARES w/Reimb.& w/ 1.00% CDSC (23.19%) N/A N/A (8.11%) IBCCX w/Reimb.& w/o 1.00% CDSC (22.42%) N/A N/A (8.11%) w/o Reimb.& w/ 1.00% CDSC (23.59%) N/A N/A (8.85%) w/o Reimb.& w/o 1.00% CDSC (22.82%) N/A N/A (8.85%) ADVISOR SHARES w/Reimb. (21.50%) N/A N/A (6.44%) IBCVX w/o Reimb. (21.90%) N/A N/A (7.28%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A and Advisor Class commenced operations November 2,1998; Class B and Class C commenced operations November 6, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 US Blue Chip Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (11/98) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy US Blue Chip Fund S&P 500 Index 02-Nov-98 9425 10000 30-Nov-98 9906 10606 31-Dec-98 10122 11217 31-Jan-99 10377 11686 28-Feb-99 10094 11323 31-Mar-99 10358 11776 30-Apr-99 10763 12232 31-May-99 10518 11943 30-Jun-99 11140 12606 31-Jul-99 10763 12213 31-Aug-99 10735 12152 30-Sep-99 10368 11819 31-Oct-99 11131 12567 30-Nov-99 11225 12822 31-Dec-99 11676 13578 31-Jan-2000 11069 12895 29-Feb-2000 11259 12651 30-Mar-2000 12301 13889 30-Apr-2000 11761 13471 31-May-2000 11278 13195 30-Jun-2000 11894 13520 31-Jul-2000 11638 13309 30-Aug-2000 12311 14135 30-Sep-2000 11297 13389 31-Oct-2000 11212 13332 30-Nov-2000 10074 12281 31-Dec-2000 10194 12341 30-Jan-2001 10579 12779 28-Feb-2001 9530 11614 31-Mar-2001 9000 10878 30-Apr-2001 9713 11724 31-May-2001 9751 11802 30-Jun-2001 9482 11519 31-Jul-2001 9434 11406 31-Aug-2001 8817 10692 30-Sep-2001 8134 9828 31-Oct-2001 8336 10016 30-Nov-2001 8971 10784 31-Dec-2001 9010 10878 31-Jan-2002 8923 10720 28-Feb-2002 8769 10513 31-Mar-2002 9010 10908 30-Apr-2002 8461 10247 31-May-2002 8375 10171 30-Jun-2002 7855 9447 31-Jul-2002 7335 8710 31-Aug-2002 7325 8768 30-Sep-2002 6526 7815 31-Oct-2002 7171 8503 30-Nov-2002 7499 9003 31-Dec-2002 7046 8474 The S&P 500 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Financials 24% 2. Information Technology 14% 3. Healthcare 14% 4. Consumer Discretionary 13% 5. Industrials 11% 6. Consumer Staples 9% 7. Energy 6% 8. Telecommunication Services 4% 9. Utilities 3% 10. Materials 2% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. S&P 500 Depository Receipts 4.6% 2. Microsoft Corporation 3.9% 3. Exxon Mobil Corporation 3.4% 4. General Electric Company 3.3% 5. Wal-Mart Stores, Inc. 3.2% 6. Citigroup Inc. 2.5% 7. Pfizer Inc. 2.4% 8. American International Group 2.3% 9. Johnson & Johnson 2.1% 10. International Business Machines 1.9% The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be representative of the Fund's current or future investments. 25 IVY US EMERGING GROWTH FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH THROUGH INVESTMENT IN THE COMMON STOCKS OF SMALL- AND MEDIUM-SIZED COMPANIES THAT ARE IN THE EARLY STAGES OF THEIR LIFECYCLES AND THAT HAVE THE POTENTIAL FOR RAPID GROWTH. [PHOTO] Note: Ivy US Emerging Growth Fund was managed by James W. Broadfoot until December 16th, 2002. At right, he discusses factors relating to Fund performance in 2002. Kimberly A. Scott, Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy US Emerging Growth Fund on December 17th, 2002. She discusses how the Fund is positioned going forward. LIPPER CATEGORY Mid-Cap Growth "In a market in which no one sector is likely to lead for a prolonged period of time, we believe that balance across sectors and holding more rather than fewer names is the best approach." Q: JIM, HOW DID IVY US EMERGING GROWTH FUND PERFORM IN 2002? A: For 2002, Ivy US Emerging Growth Fund returned -41.28%, including the impact of the maximum sales charge, and -37.70% without the sales charge. The Fund underperformed its benchmark, the Russell 2500 Growth Index, which returned -29.09%, as well as its peer group (as measured by the Lipper Mid-Cap Growth Funds average), which returned -28.33%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: It was a difficult year for growth stocks, particularly for those with higher expected growth rates and price-to-earnings ratios. As the year ended, these stocks were weighed down by uncertain economic conditions, continuing threats of terrorism and a potential war with Iraq. In this environment, investors were not willing to give as much credit for future growth expectations as they might have in more stable times. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Performance was negatively affected by our focus on high-beta (higher risk and expected growth) stocks, which underperformed last year. Specifically, lack of exposure to slower-growth areas such as finance, consumer staples and materials hurt the Fund as many of these sectors outperformed. An underweight in the top-performing financials sector had the largest negative effect. Holdings in the healthcare sector also negatively impacted performance. We added these stocks for their defensive qualities, but many underperformed in 2002, mostly for political reasons. Pharmaceuticals suffered as government scrutiny of the industry increased, and biotechnology companies had problems with the Food & Drug Administration's slow approval process and continued absence of leadership. Some healthcare holdings, such as Varian Medical Systems, did well, but the overall effect was negative. In addition, holdings in the business services sector hurt performance. As geopolitical concerns mounted, most corporations became hesitant to spend. On the positive side, consumer spending remained strong throughout most of the year, and this had a positive impact on the Fund's consumer-related holdings. Consumer stocks that did well included The University of Phoenix Online and Weight Watchers International. Outside the consumer area, holdings in certain network security, waste management and natural gas companies also did well. Q: KIM, WHAT IS YOUR OUTLOOK FOR 2003? A: We believe that stable to rising earnings in the context of a much more reasonably valued stock market should produce moderate gains in stocks over the course of 2003. While geopolitical issues should lead to continued volatility, we think that a combination of low interest rates and benign inflation will likely provide stock market valuation support. However, we believe that corporate operating earnings must continue to strengthen, preferably as a result of renewed revenue growth, to allow the stock market to move appreciably higher. Q: WHAT IS YOUR STRATEGY GOING FORWARD? A: In a market in which no one sector is likely to lead for a prolonged period of time, we believe that balance across sectors and holding more rather than fewer names is the best approach. We think the current environment requires a keen focus on specific stocks, as we feel it is those companies that have strong management teams, strong balance sheets, and real and sustainable earnings profiles that investors will continue to favor. In terms of sectors, we intend to emphasize those that we believe to have greater potential for growth, including healthcare, technology, and consumer and related areas, but we are unlikely to deviate significantly from the sector weightings in the mid-cap growth index. We believe that these strategies will have the Fund well-positioned for the year ahead. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 26 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (41.28%) (11.09%) N/A 4.02% IVEGX w/o Reimb. & 5.75% sales charge (41.28%) (11.09%) N/A 4.00% B SHARES w/Reimb. & w/ 5.00% CDSC (41.29%) (11.09%) N/A (0.03%) IVEBX w/Reimb. & w/o 5.00% CDSC (38.20%) (10.73%) N/A (0.03%) w/o Reimb. & w/ 5.00% CDSC (41.29%) (11.09%) N/A (0.02%) w/o Reimb. & w/o 5.00% CDSC (38.20%) (10.73%) N/A (0.02%) C SHARES w/Reimb. & w/ 1.00% CDSC (38.83%) (10.72%) N/A (8.29%) IVGEX w/Reimb. & w/o 1.00% CDSC (38.22%) (10.72%) N/A (8.29%) w/o Reimb. & w/ 1.00% CDSC (38.83%) (10.72%) N/A (8.29%) w/o Reimb. & w/o 1.00% CDSC (38.22%) (10.72%) N/A (8.29%) ADVISOR SHARES w/Reimb. (37.57%) N/A N/A (10.83%) IVEVX w/o Reimb. (37.57%) N/A N/A (10.83%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations March 3, 1993 (performance here is calculated based on the date the Fund first became available for sale to the public, April 30, 1993); Class B commenced operations October 22, 1993; Class C commenced operations April 30, 1996; Advisor Class commenced operations February 18, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 US Emerging Growth Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (4/93) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH] - Ivy US Emerging Growth Fund - $14,460 - Russell 2500 Growth Index - $17,465 Ivy US Emerging Russell 2500 Growth Fund Growth Index 30-Apr-93 9425 10000 31-May-93 10304 10616 30-Jun-93 11176 10642 31-Jul-93 11492 10650 31-Aug-93 12785 11211 30-Sep-93 13574 11499 31-Oct-93 13786 11726 30-Nov-93 13377 11300 31-Dec-93 13698 11797 31-Jan-94 14181 12137 28-Feb-94 14137 12158 31-Mar-94 13465 11451 30-Apr-94 13113 11438 31-May-94 12723 11208 30-Jun-94 11811 10710 31-Jul-94 11949 10943 31-Aug-94 13285 11747 30-Sep-94 13792 11742 31-Oct-94 14123 11944 30-Nov-94 13601 11415 31-Dec-94 14148 11646 31-Jan-95 14165 11532 28-Feb-95 14682 12159 31-Mar-95 15385 12631 30-Apr-95 15217 12774 31-May-95 15520 12970 30-Jun-95 16719 13757 31-Jul-95 18144 14842 31-Aug-95 18782 14966 30-Sep-95 19877 15286 31-Oct-95 19278 14746 30-Nov-95 19987 15349 31-Dec-95 20101 15553 31-Jan-96 20034 15601 29-Feb-96 20917 16287 31-Mar-96 21649 16641 30-Apr-96 24772 17780 31-May-96 25571 18415 30-Jun-96 24031 17491 31-Jul-96 20975 15753 31-Aug-96 22757 16838 30-Sep-96 24897 17732 31-Oct-96 23490 17180 30-Nov-96 23290 17810 31-Dec-96 23824 17897 31-Jan-97 24784 18432 28-Feb-97 22387 17624 31-Mar-97 20027 16465 30-Apr-97 19237 16539 31-May-97 22585 18521 30-Jun-97 23267 19141 31-Jul-97 24766 20356 31-Aug-97 24883 20852 30-Sep-97 26992 22325 31-Oct-97 25170 20932 30-Nov-97 24658 20611 31-Dec-97 24838 20538 31-Jan-98 24461 20269 28-Feb-98 26481 22009 31-Mar-98 27621 22827 30-Apr-98 28141 23034 31-May-98 26095 21555 30-Jun-98 27208 21713 31-Jul-98 25772 20096 31-Aug-98 19928 15530 30-Sep-98 22360 16891 31-Oct-98 23474 18032 30-Nov-98 26517 19315 31-Dec-98 29308 21174 31-Jan-99 30996 21787 28-Feb-99 26687 20019 31-Mar-99 27657 20951 30-Apr-99 27800 22623 30-May-99 27432 22857 30-Jun-99 30260 24472 31-Jul-99 29227 23973 31-Aug-99 29649 23455 30-Sep-99 31472 23623 31-Oct-99 34371 24773 30-Nov-99 39936 27698 31-Dec-99 47618 32922 31-Jan-00 47175 32739 29-Feb-00 58010 41136 31-Mar-00 55593 37909 30-Apr-00 46309 34215 31-May-00 42261 31169 30-Jun-00 49521 35290 31-Jul-00 45725 32398 31-Aug-00 50629 36621 30-Sep-00 48142 34252 31-Oct-00 41536 32134 30-Nov-00 30752 26012 31-Dec-00 35330 27625 31-Jan-01 36275 29414 28-Feb-01 31052 24875 31-Mar-01 27264 22123 30-Apr-01 31880 25495 31-May-01 31554 26234 30-Jun-01 31146 26847 31-Jul-01 28150 24850 31-Aug-01 25096 23197 30-Sep-01 20189 19564 31-Oct-01 21634 21494 30-Nov-01 23010 23351 31-Dec-01 23499 24632 31-Jan-2002 21996 23579 28-Feb-2002 19932 22123 31-Mar-2002 21646 23905 30-Apr-2002 19956 23111 31-May-2002 18953 21947 30-Jun-2002 17426 19929 31-Jul-2002 15095 17453 31-Aug-2002 15258 17450 30-Sep-2002 14489 16130 31-Oct-2002 14990 17057 30-Nov-2002 15689 18643 31-Dec-2002 14640 17465 The Russell 2500 Growth 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Consumer Discretionary 28% 2. Healthcare 18% 3. Technology 13% 4. Financials 8% 5. Energy 5% 6. Producer Durables 4% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Lamar Advertising Company 2.5% 2. Concord EFS, Inc. 2.4% 3. Weight Watchers International 2.4% 4. AmSurg Corp. 2.2% 5. Network Appliance, Inc. 2.1% 6. Waste Connections, Inc. 2.1% 7. Biomet, Inc. 2.0% 8. Convergys Corporation 2.0% 9. Synovus Financial Corp. 2.0% 10. Cox Radio, Inc. 2.0% The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be representative of the Fund's current or future investments. 27 IVY BOND FUND THE FUND'S GOAL: TO PROVIDE A HIGH LEVEL OF CURRENT INCOME BY INVESTING AT LEAST 80% OF THE FUND'S TOTAL ASSETS IN BONDS RATED IN THE FOUR HIGHEST RATINGS CATEGORIES USED BY MOODY'S INVESTOR SERVICES AND STANDARD AND POOR'S CORPORATION. [PHOTO] Note: Ivy Bond Fund was managed by Richard Gluck until December 16th, 2002. At right, he discusses factors relating to Fund performance in 2002. James C. Cusser, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Bond Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Corporate Debt BBB-Rated "We believe that the government will join the household sector in spending and boosting economic prospects, and that corporations will begin to spend hand in hand with their prospects for profitability." Q: RICHARD, HOW DID IVY BOND FUND PERFORM IN 2002? A: For 2002,Ivy Bond Fund returned 4.30%, including the impact of the maximum sales charge,and 9.49% without the sales charge. This compares to the Fund's benchmark,the Lehman Brothers US Credit Index, which returned 10.53%, and its peer group (as measured by the Lipper Corporate Debt BBB-Rated Funds average), which returned 7.35%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: The past year was extremely difficult for the corporate bond market. Accounting scandals at some of the country's largest companies shook investor confidence and diminished their faith in corporate America. As more and more corporations came out with disturbing revelations, the merest hint of any problem, real or perceived, could destroy a company's bonds in a matter of days, if not hours. Volatility was also caused by the realization that US corporations had over-leveraged themselves during the 1990s, borrowing to buy back stock and to invest in businesses (fixed and wireless telecom companies, merchant power generators and others) perceived to have enormous future returns -- returns that, for many, never materialized. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Performance was hurt by light exposure to noncorporate holdings, an area that outperformed. In addition, the Fund was concentrated in BBB-rated corporate bonds, which underperformed higher-rated corporate bonds in 2002. This helps to explain why the Fund underperformed its benchmark, which contains a more diverse range of debt issues. On the positive side, the Fund's focus on value situations helped it avoid companies involved in the over-leveraging and excessive capital-spending trend. The Fund did not hold troubled names involved in financial scandals, and this significantly helped performance. The Fund also did not hold many electric utilities, which were the worst performing sector in the bond market. However, the Fund did hold CalPine, which had a negative effect on performance. In addition,the Fund was not exposed to the hardest-hit telecom names,focusing instead on companies with stronger fundamentals such as Verizon and Poland's TPSA. Performance also benefited from an overweight in the consumer sector, which showed resilience for most of the year despite uncertain economic conditions, and from large healthcare holdings such as McKesson and Health Care Corporation of America. In addition, holdings in REITS (real estate investment trusts), energy and home construction benefited performance. Holdings in Delta Airlines, which announced higher-than-expected losses in the third quarter, and Ford Motors hurt performance. Q: JIM, WHAT IS YOUR STRATEGY FOR 2003? A: In the past, Ivy Bond Fund has been comprised almost entirely of corporate bonds. Corporate bonds will still play a major role, but we will most likely add a greater number of mortgage-backed securities, Treasury bonds and other types of debt securities. However, much depends on market conditions. Q: WHAT IS YOUR OUTLOOK FOR 2003? A: The Federal Reserve reduced interest rates to a historically low 1.25% in the fourth quarter. Of course, the Fed can only bring the "horse to water"; making the economy "drink" is up to the economy's investors -- households, corporations, and governments. We believe that the government will join the household sector in spending and boosting economic prospects,and that corporations will begin to spend hand in hand with their prospects for profitability. We also believe that the household's continued spending, governmental deficits, and the return of corporate confidence bode: higher interest rates in 2003, higher corporate profitability, tighter corporate spreads and a continuing steep yield curve. We will closely monitor these factors as we position the Fund for the year ahead. Performance cited is for Class A shares at net asset value and at maximum sales load of 4.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 28 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002 SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A Shares w/Reimb. 4.75% sales charge 4.30% 1.62% 5.47% 7.11% MCFIX w/o Reimb. & 4.75% sales charge 4.30% 1.62% 5.47% 2.34% B Shares w/Reimb. & w/ 5.00% CDSC 2.65% 1.17% N/A 4.48% IVBBX w/Reimb. & w/o 5.00% CDSC 7.65% 1.55% N/A 4.48% w/o Reimb. & w/ 5.00% CDSC 2.65% 1.17% N/A 4.48% w/o Reimb. & w/o 5.00% CDSC 7.65% 1.55% N/A 4.48% C Shares w/Reimb. & w/ 1.00% CDSC 6.79% 1.60% N/A 4.11% IVBCX w/Reimb. & w/o 1.00% CDSC 7.79% 1.60% N/A 4.11% w/o Reimb. & w/ 1.00% CDSC 6.79% 1.60% N/A 4.11% w/o Reimb. & w/o 1.00% CDSC 7.79% 1.60% N/A 4.11% Advisor Shares w/Reimb. 8.52% 2.50 N/A 2.53% IVBVX w/o Reimb. 8.52% 0.65 N/A 0.66% CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations September 6, 1985; Class B commenced operations April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class commenced operations January 20, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. 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 Bond Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW 10-Year Performance Comparison of a $10,000 Investment in the Fund (Class A shares including 4.75% maximum sales charge) (GRAPH) LEHMAN IVY BROTHERS BOND US CREDIT FUND INDEX ----- --------- 31-Dec-92 9525 10000 31-Jan-93 9771 10233 28-Feb-93 9990 10468 31-Mar-93 10085 10504 30-Apr-93 10123 10585 31-May-93 10219 10598 30-Jun-93 10499 10855 31-Jul-93 10570 10934 31-Aug-93 10855 11206 30-Sep-93 10885 11232 31-Oct-93 10991 11289 30-Nov-93 10890 11150 31-Dec-93 10996 11216 31-Jan-94 11268 11434 28-Feb-94 11066 11164 31-Mar-94 10722 10821 30-Apr-94 10593 10717 31-May-94 10574 10677 30-Jun-94 10500 10651 31-Jul-94 10660 10920 31-Aug-94 10743 10932 30-Sep-94 10609 10729 31-Oct-94 10590 10704 30-Nov-94 10558 10686 31-Dec-94 10545 10775 31-Jan-95 10560 11003 28-Feb-95 10765 11320 31-Mar-95 10780 11413 30-Apr-95 11094 11605 31-May-95 11519 12152 30-Jun-95 11594 12262 31-Jul-95 11659 12208 31-Aug-95 11811 12404 30-Sep-95 11958 12551 31-Oct-95 12031 12715 30-Nov-95 12168 12958 31-Dec-95 12381 13172 31-Jan-96 12519 13257 29-Feb-96 12324 12942 31-Mar-96 12258 12832 30-Apr-96 12238 12725 31-May-96 12363 12703 30-Jun-96 12517 12889 31-Jul-96 12566 12914 31-Aug-96 12553 12874 30-Sep-96 12887 13147 31-Oct-96 13151 13506 30-Nov-96 13447 13795 31-Dec-96 13379 13604 31-Jan-97 13496 13623 28-Feb-97 13695 13681 31-Mar-97 13471 13468 30-Apr-97 13636 13672 31-May-97 13827 13826 30-Jun-97 14080 14022 31-Jul-97 14646 14535 31-Aug-97 14445 14321 30-Sep-97 14736 14571 31-Oct-97 14845 14756 30-Nov-97 14886 14839 31-Dec-97 14968 14996 31-Jan-98 15124 15174 28-Feb-98 15124 15170 31-Mar-98 15172 15226 30-Apr-98 15221 15322 31-May-98 15276 15504 30-Jun-98 15312 15618 31-Jul-98 15278 15603 31-Aug-98 14864 15676 30-Sep-98 14919 16184 31-Oct-98 14578 15935 30-Nov-98 15081 16235 31-Dec-98 14968 16282 31-Jan-99 14902 16443 28-Feb-99 14448 16053 31-Mar-99 14669 16166 30-Apr-99 14715 16214 31-May-99 14560 15997 30-Jun-99 14490 15914 31-Jul-99 14421 15825 31-Aug-99 14255 15787 30-Sep-99 14298 15958 31-Oct-99 14205 16032 30-Nov-99 14175 16049 31-Dec-99 14045 15964 31-Jan-00 14025 15908 29-Feb-00 14181 16055 31-Mar-00 14434 16192 30-Apr-00 13894 16050 31-May-00 13600 15990 30-Jun-00 13854 16391 31-Jul-00 14042 16590 30-Aug-00 14227 16806 30-Sep-00 14218 16894 31-Oct-00 14193 16911 30-Nov-00 14198 17130 31-Dec-00 14310 16938 31-Jan-01 14600 17402 28-Feb-01 14739 17554 31-Mar-01 14815 17663 30-Apr-01 14705 17599 31-May-01 14836 17761 30-Jun-01 14928 17850 31-Jul-01 15324 18316 31-Aug-01 15548 18561 30-Sep-01 15378 18533 31-Oct-01 15696 18993 30-Nov-01 15577 18828 31-Dec-01 15554 18698 31-Jan-2002 15705 18857 28-Feb-2002 15798 19000 31-Mar-2002 15589 18648 30-Apr-2002 15921 18908 31-May-2002 16042 19157 30-Jun-2002 16122 19188 31-Jul-2002 16105 19178 31-Aug-2002 16442 19675 30-Sep-2002 16799 20049 31-Oct-2002 16296 19816 30-Nov-2002 16577 20074 31-Dec-2002 17031 20666 The Lehman Brothers US Credit Index is an unmanaged index 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. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. CREDIT QUALITY (S&P) 12/31/02 % of Total Investments 1. BBB 64% 2. A 16% 3. BB 7% 4. AAA 7% 5. AA 6% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Storage USA Partnership L.P. 5.4% 2. Northrop Grumman Corp. 4.4% 3. BRE Properties Inc. 4.3% 4. Spieker Properties 4.0% 5. Tele Communications Inc. 4.0% 6. RJ Reynolds Tobacco Holdings Inc. 4.0% 7. TE Products Pipeline Co. 3.7% 8. Time Warner Inc. 3.4% 9. Indiantown Cogeneration 3.2% 10. Pulte Corp. 3.1% The top 10 holdings and the credit quality distribution are as of 12/31/02 and may not be representative of the Fund's current or future investments. 29 IVY MONEY MARKET FUND THE FUND'S GOAL: TO OBTAIN AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND LIQUIDITY BY INVESTING IN HIGH QUALITY, SHORT-TERM SECURITIES. [PHOTO] Note: Ivy Money Market Fund was managed by Richard Gluck until December 16th, 2002. Mira Stevovich, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Money Market Fund on December 17th, 2002. The Fund's manager actively monitors the portfolio on a daily basis, while searching out attractive investments within the money market universe to provide investors with a competitive yield. INVESTMENT STRATEGY In pursuit of its objective, Ivy Money Market Fund invests in money market instruments maturing within 13 months or less and maintains a portfolio with a dollar-weighted average maturity of 90 days or less. While there are no guarantees, the Fund's emphasis on securities with relatively short-term maturities is designed to enable the Fund to maintain a constant net asset value of $1.00 per share. However, it is important to note that the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Thus, although the Fund manager seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Fund. PORTFOLIO HOLDINGS The Fund is invested in U.S. dollar-denominated, high-quality money market obligations and instruments, including debt securities issued or guaranteed by the U.S.government. CREDIT QUALITY The value of Ivy Money Market Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issue specific, political or economic developments. The Fund's debt investments are required to present minimal credit risk and be included in one of the two highest short-term rating categories that apply to debt securities. Within this environment,the Fund's manager actively monitors the portfolio on a daily basis, while searching out attractive investments within the money market universe to provide investors with a competitive yield. 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. 30 [PHOTOGRAPH] "See first that the design is wise and just; that ascertained, pursue it resolutely." - William Shakespeare 31 December 31, 2002 SCHEDULES OF INVESTMENTS IVY CUNDILL GLOBAL VALUE FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 70.5% ------------------------------ EUROPE - 2.5% ------------------------------ SWITZERLAND - 2.5% Sulzer AG (a) 1,000 $ 135,967 ---------------- FAR EAST - 46.8% ------------------------------ HONG KONG - 5.4% First Pacific Company Ltd. (a) 2,010,000 180,422 Jardine Strategic Holdings Limited 46,000 116,380 ---------------- 296,802 ---------------- INDIA - 2.4% Videsh Sanchar Nigam Ltd. 32,000 131,200 ---------------- JAPAN - 35.3% Aiful Corporation 6,000 225,499 Asatsu-DK Inc. 15,500 274,943 Coca-Cola West Japan Company Limited 8,000 119,660 Lion Corporation 49,000 194,068 Nikko Cordial Corporation 76,000 256,172 Nippon Broadcasting System, Incorporated 8,000 239,319 NIPPONKOA Insurance Company, Limited 41,000 154,437 Sankyo Company, Ltd. 21,000 263,495 Tokyo Broadcasting System, Inc. 17,000 213,736 ---------------- 1,941,329 ---------------- SOUTH KOREA - 3.7% Korea Tobacco & Ginseng Corporation (KT & G) 11,400 157,632 Korea Tobacco & Ginseng Corporation (KT & G) - GDR (f) 7,000 46,550 ---------------- 204,182 ---------------- NORTH AMERICA - 21.2% ------------------------------ CANADA - 12.7% Brascan Corporation 8,000 160,782 QLT Inc. (a) 22,000 186,608 NAME OF SECURITY SHARES VALUE Teck Cominco Limited CL B 20,000 $ 146,856 Torstar Corporation CL B 12,700 204,997 ---------------- 699,243 ---------------- UNITED STATES - 8.5% Alderwoods Group, Inc. (a) 30,400 144,096 Apple Computer, Inc. (a) 7,500 107,475 Liberty Media Corporation (a) 18,720 167,357 Sun Microsystems, Inc. (a) 15,000 46,650 ---------------- 465,578 ---------------- TOTAL INVESTMENTS - 70.5% (Cost - $4,055,193) $ 3,874,301 (Cost on Federal income tax basis - $4,220,924) OTHER ASSETS, LESS LIABILITIES - 29.5% 1,620,299 ---------------- NET ASSETS - 100% $ 5,494,600 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 132,905 Gross unrealized depreciation (313,797) ---------------- Net unrealized depreciation for financial statement purposes (180,892) Less: tax basis adjustments (165,731) ---------------- Net unrealized depreciation for Federal income tax purposes $ (346,623) ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $6,552,426 and $3,755,784, respectively, for the period ended December 31, 2002. Forward foreign currency contracts at December 31, 2002 were: CONTRACTS TO BUY ------------------------------------- SETTLEMENT LOCAL VALUE IN EXCHANGE UNREALIZED CURRENCY DATE CURRENCY IN U.S.$ FOR U.S.$ APPRECIATION ---------------------------------------------------------------------------------------------- British Pound January 8, 2003 8,887 14,000 14,299 $ 299 British Pound January 8, 2003 64,770 103,385 104,214 829 Hong Kong Dollar January 8, 2003 429,033 55,000 55,013 13 Hong Kong Dollar January 8, 2003 522,747 67,000 67,030 30 Hong Kong Dollar January 8, 2003 507,124 65,000 65,027 27 Hong Kong Dollar January 8, 2003 265,190 34,000 34,004 4 Japanese Yen January 8, 2003 29,375,500 245,000 247,601 2,601 Swiss Franc January 8, 2003 10,388 7,000 7,514 514 Swiss Franc January 8, 2003 123,463 84,000 89,301 5,301 -------------- $ 9,618 ============== 32 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) CONTRACTS TO SELL ------------------------------------- UNREALIZED SETTLEMENT LOCAL VALUE IN EXCHANGE APPRECIATION/ CURRENCY DATE CURRENCY IN U.S.$ FOR U.S.$ (DEPRECIATION) ---------------------------------------------------------------------------------------------- Japanese Yen January 8, 2003 53,505,560 457,000 450,989 $ 6,011 Japanese Yen January 8, 2003 44,655,800 382,000 376,396 5,604 -------- $ 11,615 -------- British Pound January 8, 2003 35,874 52,000 57,722 $ (5,722) British Pound January 8, 2003 25,540 39,000 41,094 (2,094) British Pound January 8, 2003 12,242 19,000 19,698 (698) Hong Kong Dollar January 8, 2003 554,943 71,000 71,158 (158) Hong Kong Dollar January 8, 2003 39,091 5,000 5,013 (13) Hong Kong Dollar January 8, 2003 156,236 20,000 20,034 (34) Hong Kong Dollar January 8, 2003 125,024 16,000 16,031 (31) Hong Kong Dollar January 8, 2003 132,697 17,000 17,015 (15) Hong Kong Dollar January 8, 2003 374,376 48,000 48,005 (5) Hong Kong Dollar January 8, 2003 1,170,150 150,000 150,044 (44) Hong Kong Dollar June 11, 2003 476,087 61,000 61,002 (2) Japanese Yen January 8, 2003 63,760,770 513,000 537,429 (24,429) Japanese Yen January 8, 2003 21,156,660 174,000 178,326 (4,326) Japanese Yen June 11, 2003 36,086,910 291,000 305,858 (14,858) South Korean Won January 8, 2003 82,236,000 66,000 69,278 (3,278) South Korean Won January 8, 2003 49,101,000 39,000 41,364 (2,364) South Korean Won January 8, 2003 58,512,000 48,000 49,292 (1,292) Swiss Franc January 8, 2003 61,035 39,000 44,146 (5,146) Swiss Franc January 8, 2003 193,323 130,000 139,830 (9,830) Swiss Franc January 8, 2003 42,572 29,000 30,792 (1,792) -------------- $(76,131) -------------- Net unrealized depreciation on forward foreign currency contracts $(54,898) ============== IVY DEVELOPING MARKETS FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 100.3% ------------------------------ AFRICA - 5.8% ------------------------------ SOUTH AFRICA - 5.8% Nedcor Limited 8,400 $ 108,763 Standard Bank Group Limited 38,067 133,759 ---------------- 242,522 ---------------- EASTERN EUROPE - 10.5% ------------------------------ HUNGARY - 4.2% Magyar Tavkozlesi Rt 23,600 85,557 OTP Bank Rt 9,000 88,475 ---------------- 174,032 ---------------- POLAND - 4.6% Bank Pekao S.A. (a) 4,000 98,578 Telekomunikacja Polska S.A. (a) 28,200 93,767 ---------------- 192,345 ---------------- RUSSIA - 1.7% LUKOIL 1,200 73,455 ---------------- EUROPE - 6.1% ------------------------------ LUXEMBOURG - 1.8% Tenaris S.A. (a) 3,861 74,208 ---------------- UNITED KINGDOM - 4.3% Anglo American plc 4,850 72,069 South African Breweries plc 15,500 109,984 ---------------- 182,053 ---------------- NAME OF SECURITY SHARES VALUE FAR EAST - 44.1% ------------------------------ HONG KONG - 9.6% Cathay Pacific Airways 67,000 $ 91,500 China Mobile (Hong Kong) Ltd. (a) 38,300 91,104 Esprit Holdings Limited 60,000 101,175 Sun Hung Kai Properties Ltd. 20,000 118,486 ---------------- 402,265 ---------------- INDIA - 2.4% Hero Honda Motors Ltd. 17,600 99,617 ---------------- SOUTH KOREA - 22.7% Hyundai Motor Co., Ltd. 4,800 112,306 Kookmin Bank 4,140 146,604 Korea Telecom Corporation 3,300 141,065 LG Chem Limited 3,600 123,233 POSCO 1,490 148,240 Samsung Electronics 590 156,199 SK Telecom Co., Ltd. 620 119,708 ---------------- 947,355 ---------------- TAIWAN - 9.4% Asustek Computer Inc. 24,000 42,105 Formosa Plastic Corporation 44,940 58,938 Hon Hai Precision Industry Co., Ltd. 30,360 104,780 Taiwan Semiconductor Manufacturing Company (a) 96,360 118,060 United Microelectronics Corporation (a) 113,763 69,036 ---------------- 392,919 ---------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 33 December 31, 2002 SCHEDULES OF INVESTMENTS IVY DEVELOPING MARKETS FUND (CONTINUED) NAME OF SECURITY SHARES VALUE LATIN AMERICA - 32.3% ------------------------------ BRAZIL - 9.2% Cia Brasileira de Distribuicao Grupo Pao de Acucar 3,498,100 $ 53,854 Cia Vale do Rio Doce (c) 13,300 -- Embraer Brasileira de Aeronautica S.A. (Embraer) 7,553 120,093 Petroleo Brasileiro S.A. - Petrobras 9,143 119,839 Tele Norte Leste Participacoes S.A. 12,406 91,184 Telesp Celular Participacoes S.A. 1 -- ---------------- 384,970 ---------------- CHILE - 1.3% Antofagasta plc 5,363 53,962 ---------------- MEXICO - 19.2% America Movil S.A. de C.V. 6,900 99,084 Cemex S.A. De C.V. 22,955 98,563 Fomento Economico Mexicano, S.A. Sponsored ADR 4,100 149,322 Grupo Financiero Banorte S.A. de C.V. 30,580 74,521 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 160,000 120,948 Grupo Televisa S.A. Sponsored GDR (a) 4,000 111,720 Telefonos de Mexico S.A. Class L - ADR 4,600 147,108 ---------------- 801,266 ---------------- PERU - 2.6% Cia de Minas Buenaventura S.A. Sponsored ADR 4,200 110,838 ---------------- MIDDLE EAST - 1.5% ------------------------------ ISRAEL - 1.5% Check Point Software Technologies Ltd. (a) 4,700 60,959 ---------------- TOTAL INVESTMENTS - 100.3% (Cost - $4,866,013) $ 4,192,766 (Cost on Federal income tax basis - $4,913,737) LIABILITIES, IN EXCESS OF OTHER ASSETS - 0.3% (12,352) ---------------- NET ASSETS - 100% $ 4,180,414 ================ NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 473,293 Gross unrealized depreciation (1,146,540) ---------------- Net unrealized depreciation for financial statement purposes (673,247) Less: tax basis adjustments (47,724) ---------------- Net unrealized depreciation for Federal income tax purposes $ (720,971) ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $2,461,048 and $3,079,883, respectively, for the period ended December 31, 2002. IVY EUROPEAN OPPORTUNITIES FUND EQUITY SECURITIES -100.3% ------------------------------ AFRICA - 3.3% ------------------------------ SOUTH AFRICA - 3.3% Nasper Limited (a) 84,700 $ 2,286,900 ---------------- EUROPE - 97.0% ------------------------------ AUSTRIA - 1.4% Telecom Austria AG (a) 100,000 1,012,624 Yline Internet Business Services AG (a)(c) 26,940 -- ---------------- 1,012,624 ---------------- BELGIUM - 0.8% Agfa Gevaert NV 25,000 557,468 ---------------- DENMARK - 1.1% ISS A/S (a) 22,000 792,561 ---------------- FINLAND - 2.1% M-real Oyj 175,000 1,469,091 ---------------- FRANCE - 16.1% AXA 120,000 1,610,544 BNP Paribas SA 37,000 1,507,613 Cie Francaise d'Etudes et de Construction (Technip SA) 21,500 1,538,663 Essilor International SA 32,000 1,317,985 JC Decaux SA (a) 135,000 1,629,117 Sagem SA - Preferred 50,000 2,486,962 Wanadoo (a) 274,400 1,229,512 ---------------- 11,320,396 ---------------- GERMANY - 4.7% Continental AG (a) 50,000 768,650 Deutsche Boerse AG 26,000 1,036,759 Porsche AG 3,600 1,495,955 ---------------- 3,301,364 ---------------- 34 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY SHARES VALUE GREECE - 6.3% Folli-Follie SA 90,000 $ 1,522,398 Hellenic Telecommunications Organization SA (OTE) 175,000 1,928,182 Public Power Corporation (PPC) 68,000 941,897 ---------------- 4,392,477 ---------------- ITALY - 2.0% Telecom Italia SpA 150,000 757,107 Tod's SpA (a) 20,000 640,314 ---------------- 1,397,421 ---------------- NETHERLANDS - 18.3% Aegon NV 165,000 2,122,732 Buhrmann NV 325,000 1,418,723 Fugro NV 50,000 2,262,925 Hagemeyer NV 100,000 724,052 IHC Caland NV 51,000 2,691,900 Koninklijke Ahold NV 72,780 924,098 Van der Moolen Holding NV 60,000 1,290,702 Vedior NV 250,000 1,427,117 ---------------- 12,862,249 ---------------- SPAIN - 4.0% Altadis, S.A. 42,000 958,141 Compania Espanola De Petroleos, S.A. 89,615 1,635,314 Telepizza, S.A. (a) 229,667 180,751 ---------------- 2,774,206 ---------------- SWITZERLAND - 7.9% Credit Suisse Group 50,000 1,084,842 Credit Suisse Group Rights (a) 50,000 -- Kaba Holdings AG 8,267 1,536,584 Lonza Group AG 13,791 837,819 Zurich Financial Services AG 22,000 2,052,521 ---------------- 5,511,766 ---------------- UNITED KINGDOM - 32.3% Aberdeen Asset Management PLC 1,500,000 1,714,562 British American Tobacco plc 100,000 998,953 British Sky Broadcasting Group plc ("BSkyB") 150,000 1,543,105 Chubb Security 1,000,000 1,416,727 easyJet plc (a) 400,000 1,783,788 Filtronic plc (a) 700,000 974,805 HBOS plc 100,000 1,054,496 Imperial Tobacco Group plc 100,000 1,693,633 Johnston Press plc 263,600 1,563,819 Kidde plc 893,250 1,006,641 PHS Group plc 1,500,000 1,883,603 Punch Taverns plc 490,816 1,493,427 Royal Bank of Scotland Group plc 70,000 1,674,636 Shell Transport & Trading Co. plc 300,000 1,974,161 The Berkeley Group plc 68,000 649,730 Xstrata plc (a) 120,000 1,253,803 ---------------- 22,679,889 ---------------- NORTH AMERICA - 0.0% ------------------------------ UNITED STATES OF AMERICA -0.0% Global TeleSystems Group, Inc. (a)(c) 3,400,000 -- ---------------- NAME OF SECURITY SHARES VALUE TOTAL INVESTMENTS - 100.3% (Cost - $101,136,872) (b) $ 70,358,412 LIABILITIES, IN EXCESS OF OTHER ASSETS - 0.3% (196,735) ---------------- NET ASSETS - 100% $ 70,161,677 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 8,457,994 Gross unrealized depreciation (39,236,454) ---------------- Net unrealized depreciation $ (30,778,460) ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $59,378,318 and $84,374,539, respectively, for the period ended December 31, 2002. IVY GLOBAL FUND EQUITY SECURITIES - 99.3% ------------------------------ EUROPE - 31.5% ------------------------------ FINLAND - 1.2% Nokia Oyj 1,750 $ 27,821 Stora Enso Oyj 2,600 27,419 ---------------- 55,240 ---------------- FRANCE - 6.0% Aventis SA 600 32,614 AXA 2,400 32,211 Cie Francaise d'Etudes et de Construction (Technip SA) 226 16,174 LVMH Moet Hennessy Louis Vuitton SA 645 26,498 Schneider SA 700 33,121 Societe Generale 700 40,767 Societe Television Francaise 1 1,200 32,060 Thomson Multimedia (a) 1,300 22,181 TotalFinaElf - B Shares 270 38,560 ---------------- 274,186 ---------------- GERMANY - 2.8% Adidas-Salomon AG 500 42,499 Deutsche Lufthansa AG (a) 1,700 16,073 Medion AG 600 20,777 Siemens AG 422 17,934 Volkswagen AG Pfd 1,200 31,103 ---------------- 128,386 ---------------- ITALY - 1.7% Assicurazioni Generali S.p.A. 1,300 26,738 ENEL S.p.A. 9,500 49,445 ---------------- 76,183 ---------------- NETHERLANDS - 4.7% Akzo Nobel NV 1,174 37,241 ING Groep NV 1,344 22,763 Koninklijke (Royal) KPN NV (a) 5,200 33,831 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 35 December 31, 2002 SCHEDULES OF INVESTMENTS IVY GLOBAL FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Koninklijke (Royal) Philips Electronicas NV 1,534 $ 26,882 Koninklijke Ahold NV 2,520 31,997 Royal Dutch Petroleum Company 1,000 44,020 TPG NV 1,200 19,455 ---------------- 216,189 ---------------- NORWAY - 0.7% Norsk Hydro A.S. Sponsored ADR 750 33,307 ---------------- SPAIN - 0.9% Amadeus Global Travel Distribution S.A. 2,350 9,691 Iberdrola S.A. 2,200 30,820 ---------------- 40,511 ---------------- SWITZERLAND - 3.5% Credit Suisse Group 950 20,612 Holcim Ltd. 190 34,491 Novartis AG 580 21,162 STMicroelectronics NV 1,454 28,368 UBS AG 1,200 58,321 ---------------- 162,954 ---------------- UNITED KINGDOM - 10.0% Abbey National plc 2,900 24,137 Amvescap plc 4,000 25,485 BAE Systems plc 8,580 17,094 BT Group plc 11,072 34,759 Diageo plc 3,436 37,366 GlaxoSmithKline plc 2,573 49,376 HBOS plc 6,100 64,324 Rio Tinto plc Sponsored ADR 639 50,820 Royal Bank of Scotland Group plc 2,037 1,795 Unilever plc 6,900 65,651 Vodafone AirTouch plc 33,779 61,723 WPP Group plc 3,600 27,356 ---------------- 459,886 ---------------- FAR EAST - 11.6% ------------------------------ AUSTRALIA - 1.7% BHP Ltd. 8,385 47,924 National Australia Bank Ltd. 1,700 30,394 ---------------- 78,318 ---------------- HONG KONG - 1.2% Hang Seng Bank 3,000 31,930 Sun Hung Kai Properties Ltd. 4,000 23,697 ---------------- 55,627 ---------------- JAPAN - 7.0% Asahi Glass Company, Ltd. 4,300 26,343 Canon Inc. 930 35,031 Kirin Brewery Company, Limited 5,000 31,811 Murata Manufacturing Company, Ltd. 400 15,674 Nintendo Co., Ltd. 400 37,381 Nissan Motor Co., Ltd. 5,000 39,016 Nomura Holdings, Inc. 2,600 29,227 NTT DoCoMo, Inc. 10 18,454 Sharp Corporation 2,600 24,692 SMC Corporation 300 28,162 Sony Corporation 900 37,617 ---------------- 323,408 ---------------- NAME OF SECURITY SHARES VALUE SOUTH KOREA - 1.3% POSCO 300 $ 29,847 Samsung Electronics 110 29,122 ---------------- 58,969 ---------------- TAIWAN - 0.4% Taiwan Semiconductor Manufacturing Company (a) 13,200 16,173 ---------------- LATIN AMERICA - 1.6% ------------------------------ MEXICO - 1.6% Fomento Economico Mexicano, S.A. Sponsored ADR 600 21,852 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 26,500 20,032 Telefonos de Mexico S.A. Class L - ADR 1,050 33,579 ---------------- 75,463 ---------------- NORTH AMERICA - 54.6% ------------------------------ UNITED STATES - 54.6% 3M Co. 195 24,044 Abbott Laboratories 565 22,600 Air Products and Chemicals, Inc. 245 10,474 Alcoa Inc. 675 15,377 ALLTEL Corporation 175 8,925 American Express Company 670 23,685 American International Group, Inc. 1,010 58,429 Amgen Inc. (a) 520 25,137 Anadarko Petroleum Corporation 205 9,820 Analog Devices, Inc. (a) 150 3,581 Anheuser-Busch Companies, Inc. 445 21,538 AOL Time Warner Inc. (a) 1,500 19,650 Applied Materials, Inc. (a) 1,055 13,747 AT&T Corp. 256 6,684 Automatic Data Processing, Inc. 425 16,681 Bank of America Corporation 630 43,829 Bank One Corporation 595 21,747 BB&T Corporation 440 16,276 Bed Bath & Beyond Inc. (a) 330 11,395 BellSouth Corporation 615 15,910 Bristol-Myers Squibb Company 850 19,678 Carnival Corp 555 13,847 Chevron Texaco Corporation 495 32,908 Cisco Systems, Inc. (a) 2,925 38,318 Citigroup Inc. 1,760 61,934 Colgate-Palmolive Company 325 17,040 Comcast Corporation (a) 1,154 27,200 ConocoPhillips 325 15,727 Dell Computer Corporation (a) 1,135 30,350 DTE Energy Company 270 12,528 Du Pont E.I. du Pont de Nemours and Company 485 20,564 Eli Lilly and Company 460 29,210 Exelon Corporation 290 15,303 Exxon Mobil Corporation 2,505 87,525 Fannie Mae 455 29,270 Fifth Third Bancorp 295 17,272 First Data Corporation 480 16,997 FPL Group, Inc. 210 12,627 Freddie Mac 290 17,125 Gannett Co., Inc. 210 15,078 General Dynamics Corporation 165 13,096 36 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY SHARES VALUE General Electric Company 3,465 $ 84,373 General Motors Corporation 270 9,952 Gillette Company 575 17,457 Harley-Davidson Inc. 250 11,550 Hewlett-Packard Company 1,375 23,870 Home Depot, Inc. 955 22,882 Honeywell International Inc. 605 14,520 Intel Corporation 2,440 37,991 International Business Machines Corp. 615 47,663 International Paper Company 380 13,289 ITT Industries, Inc. 175 10,621 J.P. Morgan Chase and Co. 775 18,600 Johnson & Johnson 1,065 57,201 Kimberly-Clark Corporation 215 10,206 Kohl's Corporation (a) 185 10,351 Lehman Brothers Holdings Inc. 185 9,859 Linear Technology Corporation 145 3,729 Lockheed Martin Corporation 330 19,058 Lowe's Companies, Inc. 485 18,188 Maxim Integrated Products, Inc. 155 5,121 McDonald's Corporation 595 9,568 Medtronic, Inc. 540 24,624 Merck & Co., Inc. 825 46,703 Merrill Lynch & Co., Inc. 455 17,267 Microsoft Corporation (a) 1,875 96,938 Morgan Stanley 425 16,966 Motorola, Inc. 1,230 10,640 Nike, Inc. 120 5,336 Noble Corporation (a) 85 2,988 Oracle Corporation (a) 2,445 26,406 PepsiCo, Inc. 760 32,087 Pfizer Inc. 2,025 61,904 Pharmacia Corporation 570 23,826 Philip Morris Companies Inc. 895 36,274 Pulte Homes, Inc. 200 9,574 S&P 500 Depository Receipts 1,000 88,290 SBC Communications Inc. 1,110 30,092 Schering-Plough Corporation 695 15,429 State Street Corporation 370 14,430 SunTrust Banks, Inc. 250 14,230 Sysco Corporation 470 14,001 Target Corporation 570 17,100 Texas Instruments Inc. 1,020 15,310 The Boeing Company 535 17,650 The Coca-Cola Company 805 35,275 The Goldman Sachs Group, Inc. 200 13,620 The Procter & Gamble Company 505 43,400 The Southern Company 545 15,473 The Walt Disney Company 990 16,147 Tyco International Ltd. 955 16,312 U.S. Bancorp 1,085 23,024 United Parcel Service, Inc. 440 27,755 United Technologies Corporation 285 17,653 UnitedHealth Group Incorporated 175 14,613 Verizon Communications 910 35,263 Viacom Inc. Cl B (a) 795 32,404 Wachovia Corporation 720 26,237 Walgreen Co. 385 11,238 Wal-Mart Stores, Inc. 1,620 81,826 Washington Mutual, Inc. 605 20,891 Wells Fargo & Company 745 34,918 NAME OF SECURITY SHARES VALUE Wyeth 575 $ 21,505 ---------------- 2,514,784 ---------------- TOTAL INVESTMENTS - 99.3% (Cost - $5,277,698) $ 4,569,584 (Cost on Federal income tax basis - $5,388,293) OTHER ASSETS, LESS LIABILITIES - 0.7% 33,159 ---------------- NET ASSETS - 100% $ 4,602,743 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 300,320 Gross unrealized depreciation (1,008,434) ---------------- Net unrealized depreciation for financial statement purposes (708,114) Less: tax basis adjustments (110,595) ---------------- Net unrealized depreciation for Federal income tax purposes $ (818,709) ================ Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $3,693,509 and $5,275,807, respectively, for the period ended December 31, 2002. IVY GLOBAL NATURAL RESOURCES FUND EQUITY SECURITIES - 98.1% ------------------------------ ENERGY UTILITIES - 4.1% Duke Energy Corporation 10,000 $ 195,400 El Paso Corporation 75,000 522,000 Mirant Corporation (a) 300,000 567,000 ---------------- 1,284,400 ---------------- INTEGRATED OIL & GAS - 2.9% Hurricane Hydrocarbons Ltd. (a) 50,000 521,592 Petroleo Brasileiro S.A. - Petrobras 25,000 373,500 ---------------- 895,092 ---------------- OIL & GAS DRILLING - 13.5% ENSCO International Incorporated 30,000 883,500 GlobalSantaFe Corporation 35,000 851,200 Noble Corporation (a) 27,000 949,050 Precision Drilling Corporation (a) 22,500 725,655 Pride International, Inc. (a) 55,000 819,500 ---------------- 4,228,905 ---------------- OIL & GAS EQUIPMENT & SERVICES - 18.5% BJ Services Company (a) 10,000 323,100 National-Oilwell, Inc. (a) 60,000 1,310,400 NQL Drilling Tools Inc. (a) 250,000 1,345,124 Pason Systems Inc. (a) 30,000 226,930 Smith International, Inc. (a) 22,000 717,640 Trican Well Service Ltd. (a) 120,000 1,534,391 Weatherford International Ltd. (a) 9,000 359,370 ---------------- 5,816,955 ---------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 37 December 31, 2002 SCHEDULES OF INVESTMENTS IVY GLOBAL NATURAL RESOURCES FUND (CONTINUED) NAME OF SECURITY SHARES VALUE OIL & GAS EXPLORATION & PRODUCTION - 4.9% Canadian Natural Resources Ltd. 30,000 $ 888,731 Compton Petroleum Corporation (a) 50,000 161,099 Ocean Energy, Inc. 10,800 215,676 Talisman Energy Inc. 8,000 287,888 ---------------- 1,553,394 ---------------- OIL & GAS REFINING & TRANSPORT - 5.2% Stelmar Shipping Ltd. (a) 60,000 903,600 Valero Energy Corporation 20,000 738,800 ---------------- 1,642,400 ---------------- ALTERNATE ENERGY - 4.7% CONSOL Energy Inc. 35,000 604,800 Peabody Energy Corporation 30,000 876,900 ---------------- 1,481,700 ---------------- INDUSTRIAL MATERIALS - 5.7% Cemex S.A. De C.V. 60,000 1,290,600 Slater Steel, Inc. (a) 80,000 189,900 Steel Dynamics, Inc. (a) 25,000 300,750 ---------------- 1,781,250 ---------------- DIVERSIFIED METALS & MINING - 8.5% Cameco Corporation 15,000 355,872 Freeport-McMoRan Copper & Gold, Inc. (a) 18,000 302,040 Inco Limited (a) 40,000 845,181 Outokumpu Oyj 109,375 952,614 Pechiney SA 6,500 228,087 ---------------- 2,683,794 ---------------- PAPER & FOREST PRODUCTS -12.1% Aracruz Celulose S.A. 46,000 853,760 Cascades Inc. 45,000 445,790 Domtar, Inc. 20,000 198,762 Norske Skogindustrier ASA 27,000 381,942 Sappi Limited 10,000 133,441 Sino-Forest Corp. (a) 400,000 296,244 Smurfit-Stone Container Corporation (a) 18,000 277,038 UPM-Kymmene Oyj 7,400 243,534 Votorantim Celulose e Papel S.A. 60,000 986,400 ---------------- 3,816,911 ---------------- NAME OF SECURITY SHARES VALUE PRECIOUS METALS & MINERALS - 16.5% Anglo American Platinum Corporation Limited 10,000 $ 368,275 Cia de Minas Buenaventura S.A. Sponsored ADR 25,000 659,750 Gabriel Resources Ltd. (a) 225,000 662,276 Gold Fields Limited 22,500 314,404 Gold Fields Limited ADR 2,500 34,900 Impala Platinum Holdings Limited 25,000 1,587,897 Newmont Mining Corp 20,000 580,600 Repadre Capital Corporation (a) 82,500 638,681 Sons of Gwalia Limited 225,364 328,678 ---------------- 5,175,461 ---------------- AGRICULTURAL PRODUCTS - 1.4% Agricore United Ltd. 125,000 435,187 ---------------- WARRANTS - 0.1% Harmony Gold Warrants (a) 2,800 36,711 ---------------- TOTAL INVESTMENTS - 98.1% $ 30,832,160 (Cost - $30,207,560) (Cost on Federal income tax basis - $31,332,104) OTHER ASSETS, LESS LIABILITIES - 1.9% 596,969 ---------------- NET ASSETS - 100% $ 31,429,129 ================ Other Information: At December 31, 2002, net unrealized appreciation (depreciation) based on cost for financial statement and Federal Income tax purposes, respectively, is as follows: Gross unrealized appreciation $ 4,355,835 Gross unrealized depreciation (3,731,235) ---------------- Net unrealized appreciation for financial statement purposes 624,600 Less: tax basis adjustments (1,124,544) ---------------- Net unrealized depreciation for Federal income tax purposes $ (499,944) ================ Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $37,189,952 and $18,801,227, respectively, for the period ended December 31, 2002. 38 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) IVY GLOBAL SCIENCE & TECHNOLOGY FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 81.4% ------------------------------ CONSUMER DISCRETIONARY - 1.3% ------------------------------ EDUCATION SERVICES - 0.3% Edison Schools Inc. (a) 20,850 $ 33,777 ---------------- SERVICES: COMMERCIAL - 1.0% Getty Images Inc. (a) 3,400 103,870 ---------------- FINANCIAL SERVICES - 5.8% ------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.9% Euronet Worldwide Inc. (a) 11,800 88,618 ---------------- FINANCIAL DATA PROCESSING SERVICES & SYSTEMS - 4.9% Concord EFS Inc. (a) 31,600 497,384 ---------------- HEALTH CARE - 38.5% ------------------------------ BIOTECHNOLOGY RESEARCH & PRODUCTION - 6.1% Biogen Inc. (a)(g) 3,450 354,531 Genzyme Corp. (a) 7,200 212,904 Incyte Genomics Inc. (a) 11,250 51,300 ---------------- 618,735 ---------------- DRUGS & PHARMACEUTICALS -13.8% Abbott Laboratories 6,650 266,000 Forest Laboratories Inc. (a)(g) 4,600 648,252 IVAX Corp. (a) 12,150 147,380 Pfizer Inc. 8,400 256,788 SICOR Inc. (a) 4,850 76,872 ---------------- 1,395,292 ---------------- HEALTH CARE FACILITIES - 4.7% HCA Inc. 11,350 471,025 ---------------- HEALTH CARE MANAGEMENT SERVICES - 2.6% Cerner Corp. (a) 1,400 43,764 UnitedHealth Group Inc. 2,650 221,275 ---------------- 265,039 ---------------- HEALTH CARE SERVICES - 4.1% Anthem Inc. (a) 3,750 235,875 Province Healthcare Co. (a) 18,800 182,924 ---------------- 418,799 ---------------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES - 7.2% Alcon Inc. (a) 8,350 329,407 Guidant Corp. (a) 12,850 396,423 ---------------- 725,830 ---------------- INTEGRATED OILS - 2.2% ------------------------------ OIL: INTEGRATED DOMESTIC -2.2% ConocoPhillips 1,550 75,004 Unocal Corp. 4,750 145,255 ---------------- 220,259 ---------------- NAME OF SECURITY SHARES VALUE MATERIALS AND PROCESSING - 2.5% ------------------------------ GOLD - 2.2% Newmont Mining Corp. 7,650 $ 222,080 ---------------- METAL FABRICATING - 0.3% Lone Star Technologies Inc. (a) 1,950 29,035 ---------------- OTHER ENERGY - 9.7% ------------------------------ MACHINERY: OIL WELL EQUIP & SERV - 2.2% Baker Hughes Inc. 4,500 144,855 Cooper Cameron Corp. (a) 1,600 79,712 ---------------- 224,567 ---------------- OIL: CRUDE PRODUCERS - 7.5% Apache Corp. 3,950 225,111 Burlington Resources Inc. 4,000 170,600 Newfield Exploration Co. (a) 4,000 144,200 Noble Energy Inc. 5,700 214,035 ---------------- 753,946 ---------------- PRODUCER DURABLES - 6.9% ------------------------------ AEROSPACE - 3.4% Northrop Grumman Corp. 3,550 344,350 ---------------- IDENTIFICATION CONTROL & FILTER DEVICES - 3.5% Garmin Ltd. (a) 4,800 140,640 Pall Corp. 13,000 216,840 ---------------- 357,480 ---------------- TECHNOLOGY - 12.0% ------------------------------ COMMUNICATIONS TECHNOLOGY - 3.7% ADC Telecommunications Inc. (a) 15,500 32,395 Cisco Systems Inc. (a) 8,150 106,765 Symbol Technologies Inc. 28,000 230,160 ---------------- 369,320 ---------------- COMPUTER SERVICES SOFTWARE & SYSTEMS - 2.6% Manhattan Associates Inc. (a) 550 13,013 Micromuse Inc. (a) 9,400 35,908 PeopleSoft Inc. (a) 11,750 215,025 ---------------- 263,946 ---------------- COMPUTER TECHNOLOGY - 0.5% RSA Security Inc. (a) 8,700 52,113 ---------------- ELECTRONICS - 1.8% Sony Corp. 4,450 183,830 ---------------- ELECTRONICS: SEMI-CONDUCTORS/ COMPONENTS - 2.4% Agere Systems Inc (a) 44,450 64,008 IXYS Corp. (a) 6,700 47,302 United Microelectronics Corp. (a) 39,000 131,040 ---------------- 242,350 ---------------- ELECTRONICS: TECHNOLOGY - 1.0% Raytheon Co. 3,300 101,475 ---------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 39 December 31, 2002 SCHEDULES OF INVESTMENTS IVY GLOBAL SCIENCE & TECHNOLOGY FUND (CONTINUED) NAME OF SECURITY SHARES VALUE UTILITIES - 2.5% ------------------------------ UTILITIES: TELECOMMUNICATIONS - 2.5% Vodafone Group PLC 14,100 $ 255,492 ---------------- TOTAL INVESTMENTS - 81.4% (Cost - $8,325,263) $ 8,238,612 (Cost on Federal income tax basis - $8,378,157) OTHER ASSETS, LESS LIABILITIES - 18.6% 1,873,426 ---------------- NET ASSETS - 100% $ 10,112,038 ================ NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 81,573 Gross unrealized depreciation (168,224) ---------------- Net unrealized depreciation for financial statement purposes (86,651) Less: tax basis adjustments (52,894) ---------------- Net unrealized depreciation for Federal income tax purposes $ (139,545) ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $24,888,259 and $32,068,111, respectively, for the period ended December 31, 2002. Call options written at December 31, 2002 were: SHARES EXPIRATION EXERCISE SUBJECT FAIR DATE PRICE TO CALL VALUE ------------------------------------------------------------------------------------------ Biogen, Inc. February 15, 2003 $ 43 3,400 $ 6,120 Biogen, Inc. April 19, 2003 45 5,400 11,070 Forest Laboratories February 15, 2003 105 4,400 11,000 ------- Total (premiums received $28,823) $28,190 ======= Put options purchased at December 31, 2002 were: EXPIRATION EXERCISE SHARES FAIR DATE PRICE PURCHASED VALUE -------------------------------------------------------------------------------------------- Biogen, Inc. February 15, 2003 $ 38 3,400 $ 5,270 Forest Laboratories February 15, 2003 90 2,400 6,000 ------- Total (premiums paid $12,294) $11,270 ======= IVY INTERNATIONAL FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 98.5% ------------------------------ EUROPE - 67.8% ------------------------------ BELGIUM - 0.9% Fortis 103,000 $ 1,800,665 ---------------- FINLAND - 2.6% Nokia Oyj 170,417 2,709,233 Stora Enso Oyj 263,000 2,773,592 ---------------- 5,482,825 ---------------- FRANCE - 13.7% Aventis SA 50,529 2,746,574 AXA 251,664 3,377,633 Cie Francaise d'Etudes et de Construction (Technip SA) 24,829 1,776,906 LVMH Moet Hennessy Louis Vuitton SA (d) 60,056 2,467,226 Schneider SA 72,404 3,425,812 Societe Generale 84,025 4,893,530 Societe Television Francaise 1 (d) 138,637 3,703,892 Thomson Multimedia (a)(d) 111,000 1,893,932 TotalFinaElf - B Shares 31,174 4,452,167 ---------------- 28,737,672 ---------------- NAME OF SECURITY SHARES VALUE GERMANY - 5.1% Adidas-Salomon AG 35,450 $ 3,013,159 Deutsche Lufthansa AG (a) 196,094 1,854,001 Siemens AG (d) 57,462 2,442,061 Volkswagen AG Pfd 130,600 3,385,017 ---------------- 10,694,238 ---------------- ITALY - 3.3% Assicurazioni Generali S.p.A. 147,593 3,035,587 ENEL S.p.A. (d) 750,650 3,906,969 ---------------- 6,942,556 ---------------- NETHERLANDS - 8.8% Akzo Nobel NV 110,049 3,490,961 ING Groep NV 154,080 2,609,580 Koninklijke (Royal) KPN NV (a) 500,400 3,255,590 Koninklijke Ahold NV 228,745 2,904,409 Royal Dutch Petroleum Company 90,869 4,000,078 TPG NV 137,000 2,221,109 ---------------- 18,481,727 ---------------- NORWAY - 1.2% Norsk Hydro A.S. Sponsored ADR (d) 55,500 2,464,755 ---------------- 40 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY SHARES VALUE SPAIN - 3.6% Amadeus Global Travel Distribution S.A. 548,700 $ 2,262,811 Iberdrola S.A. (d) 215,000 3,011,900 Telefonica S.A. Sponsored ADR (a) 85,000 2,258,450 ---------------- 7,533,161 ---------------- SWITZERLAND - 6.9% Credit Suisse Group 106,700 2,315,052 Holcim Ltd. 20,281 3,681,614 Novartis AG 61,000 2,225,698 STMicroelectronics NV 86,215 1,682,055 UBS AG 94,190 4,577,720 ---------------- 14,482,139 ---------------- UNITED KINGDOM - 21.7% Abbey National plc 329,000 2,738,356 Amvescap plc 368,000 2,344,619 BAE Systems plc 851,948 1,697,312 BP Amoco plc 612,369 4,214,565 BT Group plc 1,210,690 3,800,765 Diageo plc 377,141 4,101,404 GlaxoSmithKline plc 258,078 4,952,571 HBOS plc 455,787 4,806,254 Rio Tinto plc 212,596 4,240,625 Unilever plc 450,690 4,288,139 Vodafone AirTouch plc 3,023,062 5,523,908 WPP Group plc 378,000 2,872,349 ---------------- 45,580,867 ---------------- FAR EAST - 26.8% ------------------------------ AUSTRALIA - 3.6% BHP Ltd. (d) 805,259 4,602,438 National Australia Bank Ltd. 169,800 3,035,762 ---------------- 7,638,200 ---------------- HONG KONG - 3.6% Hang Seng Bank 262,900 2,798,110 Hutchison Whampoa Ltd. 401,000 2,509,345 Sun Hung Kai Properties Ltd. 395,000 2,340,104 ---------------- 7,647,559 ---------------- JAPAN - 15.8% Asahi Glass Company, Ltd. 518,700 3,177,676 Canon Inc. 91,970 3,464,277 Kirin Brewery Company, Limited (d) 434,000 2,761,186 Murata Manufacturing Company, Ltd. 43,000 1,684,924 Nintendo Co., Ltd. 33,000 3,083,929 Nissan Motor Co., Ltd. 535,000 4,174,685 Nomura Holdings, Inc. 181,300 2,038,039 NTT DoCoMo, Inc. 1,200 2,214,544 Sharp Corporation 351,800 3,341,017 SMC Corporation 39,500 3,708,013 Sony Corporation 85,300 3,565,247 ---------------- 33,213,537 ---------------- SOUTH KOREA - 2.9% POSCO 33,200 3,303,065 Samsung Electronics 10,770 2,851,296 ---------------- 6,154,361 ---------------- NAME OF SECURITY SHARES VALUE TAIWAN - 0.9% Taiwan Semiconductor Manufacturing Company (a) 1,528,560 $ 1,872,781 ---------------- LATIN AMERICA - 3.9% ------------------------------ MEXICO - 3.9% Fomento Economico Mexicano, S.A. Sponsored ADR 66,700 2,429,214 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 2,780,000 2,101,472 Telefonos de Mexico S.A. Class L - ADR 110,900 3,546,582 ---------------- 8,077,268 ---------------- TOTAL INVESTMENTS - 98.5% (Cost - $260,333,316) $ 206,804,311 (Cost on Federal income tax basis - $264,892,714) OTHER ASSETS, LESS LIABILITIES - 1.5% 3,227,291 ---------------- NET ASSETS - 100% $ 210,031,602 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 15,901,651 Gross unrealized depreciation (69,430,656) ---------------- Net unrealized depreciation for financial statement purposes (53,529,005) Less: tax basis adjustments (4,559,398) ---------------- Net unrealized depreciation for Federal income tax purposes $ (58,088,403) ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $107,347,300 and $319,490,022, respectively, for the period ended December 31, 2002. IVY INTERNATIONAL SMALL COMPANIES FUND EQUITY SECURITIES - 99.4% ------------------------------ EUROPE - 66.0% ------------------------------ AUSTRIA - 4.4% OMV AG 550 $ 54,009 Telecom Austria AG (a) 6,979 70,671 Voest-Alpine AG (a) 2,335 56,723 ---------------- 181,403 ---------------- BELGIUM - 3.5% Agfa Gevaert NV 3,000 66,896 Omega Pharma S.A. 2,794 80,099 ---------------- 146,995 ---------------- FINLAND - 2.7% Instrumentarium Corporation 1,400 56,090 Kone Corporation 1,840 55,240 ---------------- 111,330 ---------------- FRANCE - 6.3% Carbone Lorraine SA 2,432 56,808 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 41 December 31, 2002 SCHEDULES OF INVESTMENTS IVY INTERNATIONAL SMALL COMPANIES FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Financiere Marc de Lacharriere SA (Fimalac) 2,149 $ 57,120 Medidep SA (a) 3,550 57,182 Pinguely-Haulotte 8,000 31,732 Unibail (Union du Credit-Bail Immobilier) 800 56,917 ---------------- 259,759 ---------------- GERMANY - 4.1% Continental AG (a) 2,000 30,746 Fraport AG 2,997 53,463 GfK AG 2,890 37,908 Medion AG 1,409 48,792 ---------------- 170,909 ---------------- GREECE - 2.2% Coca-Cola Hellenic Bottling Company S.A. 3,300 45,848 Public Power Corporation (PPC) 3,100 42,940 ---------------- 88,788 ---------------- IRELAND - 2.9% Irish Life & Permanent plc 5,000 54,041 Jurys Doyle Hotel Group plc 9,107 67,373 ---------------- 121,414 ---------------- ITALY - 5.3% Amplifon S.p.A. 3,349 59,462 Campari Group 1,500 46,859 Italgas S.p.A. 3,950 53,718 Permasteelisa S.p.A. 3,900 61,346 ---------------- 221,385 ---------------- NETHERLANDS - 4.9% CSM NV 2,200 46,125 IHC Caland NV 1,089 57,480 United Services Group NV 3,336 37,317 Van der Moolen Holding NV 2,880 61,954 ---------------- 202,876 ---------------- SPAIN - 10.6% ACS Actividades de Construccion y Servicios, S.A. 2,536 81,564 Aldeasa, S.A. 4,187 61,643 Aurea Concesions de Infraestructuras del Estado S.A. 3,287 82,057 Baron de Ley, S.A. (a) 3,737 107,447 Grupo Auxiliar Metalurgico, S.A. (Gamesa) (a) 3,148 51,566 Metrovacesa, S.A. 2,637 55,896 ---------------- 440,173 ---------------- SWEDEN - 1.6% Swedish Match AB 8,500 66,823 ---------------- SWITZERLAND - 6.9% Lonza Group AG 954 57,957 PubliGroupe S.A. (a) 150 23,866 Schindler Holding AG 345 64,874 NAME OF SECURITY SHARES VALUE SEZ Holding AG (a) 814 $ 13,246 Swisslog Holdings AG 3,121 28,666 Unilabs SA 3,420 66,041 Unique Zurich Airport (a) 1,062 33,027 ---------------- 287,677 ---------------- UNITED KINGDOM - 10.6% Cattles plc 10,000 46,446 Dairy Crest Group plc 11,100 61,116 Eidos plc (a) 27,909 57,175 Enterprise Inns plc 10,534 96,750 HIT Entertainment plc 13,059 44,676 HMV Group plc (a) 14,000 26,821 Luminar plc 4,000 25,211 Man Group plc (a) 2,000 28,528 Sanctuary Group plc 37,126 23,908 SSL International plc 7,000 29,019 ---------------- 439,650 ---------------- FAR EAST - 33.4% ------------------------------ AUSTRALIA - 4.1% Billabong International Ltd. 13,000 50,876 Foodland Associated Limited 4,164 41,619 Hills Motorway Group 8,000 22,749 Toll Holdings Limited (a) 15,000 53,636 ---------------- 168,880 ---------------- HONG KONG - 3.1% Cafe De Coral Holdings Limited 64,000 43,086 Convenience Retail Asia Limited (a) 116,000 30,680 Techtronic Industries 58,248 55,272 ---------------- 129,038 ---------------- JAPAN - 22.7% Asatsu-Dk Inc. 5,700 101,108 Koa Corporation 16,700 103,293 Kobayashi Pharmaceutical Co., Ltd. 3,100 106,059 Mitsubishi Securities Co., Ltd. 25,000 102,595 Moshi Moshi Hotline, Inc 2,050 64,953 OBIC Co., Ltd. 600 104,407 Otsuka Kagu. Ltd. 4,600 72,487 Taiyo Ink Mfg. Co., Ltd. 3,500 98,803 Tokyo Steel Manufacturing Co., Ltd. 26,500 87,537 Tokyo Style Co., Ltd 12,000 101,728 ---------------- 942,970 ---------------- NEW ZEALAND - 1.2% Fisher & Paykel Appliances Holdings Ltd. 9,178 48,246 ---------------- SOUTH KOREA - 2.3% Lotte Chilsung Beverage 110 51,937 Lotte Confectionery Co., Ltd. 110 44,239 ---------------- 96,176 ---------------- 42 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY SHARES VALUE TOTAL INVESTMENTS - 99.4% (Cost - $4,680,734) $ 4,124,492 (Cost on Federal income tax basis - $4,690,986) OTHER ASSETS, LESS LIABILITIES - 0.6% 25,414 ---------------- NET ASSETS - 100.0% $ 4,149,906 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 282,386 Gross unrealized depreciation (838,628) ---------------- Net unrealized depreciation for financial statement purposes (556,242) Less: tax basis adjustments (10,252) ---------------- Net unrealized depreciation for Federal income tax purposes $ (566,494) ================ Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $10,495,156 and $14,630,598, respectively, for the period ended December 31, 2002. IVY INTERNATIONAL VALUE FUND EQUITY SECURITIES - 98.5% ------------------------------ EUROPE - 66.5% ------------------------------ BELGIUM - 1.0% Fortis 26,910 $ 470,445 ---------------- FINLAND - 1.6% Metso Oyj 65,382 706,669 ---------------- FRANCE - 10.3% AXA 52,100 699,244 Cie Francaise d'Etudes et de Construction (Technip SA) (d) 3,000 214,697 Credit Lyonnais SA (d) 16,000 894,887 Schneider SA 22,009 1,041,361 Societe Generale 16,900 984,239 TotalFinaElf - B Shares 5,921 845,617 ---------------- 4,680,045 ---------------- GERMANY - 8.5% Adidas-Salomon AG 6,900 586,482 Deutsche Lufthansa AG (a) 55,000 520,006 Merck KGaA 33,555 884,148 Muenchener Rueckversicherungs- Gesellschaft AG 3,000 358,563 RWE AG 15,500 398,491 Siemens AG 9,650 410,113 Volkswagen AG 12,740 461,221 Volkswagen AG Pfd 9,000 233,271 ---------------- 3,852,295 ---------------- IRELAND - 2.2% Bank of Ireland 97,982 1,006,583 ---------------- NAME OF SECURITY SHARES VALUE ITALY - 3.7% ENEL S.p.A. 91,700 $ 477,278 ENI S.p.A. 74,000 1,176,428 ---------------- 1,653,706 ---------------- NETHERLANDS - 5.7% Akzo Nobel NV 26,802 850,210 ING Groep NV 28,000 474,223 Koninklijke Ahold NV 60,300 765,638 TPG NV 31,600 512,314 ---------------- 2,602,385 ---------------- NORWAY - 1.0% Norsk Hydro A.S. Sponsored ADR 9,900 439,659 ---------------- SPAIN - 3.9% Amadeus Global Travel Distribution S.A. 41,500 171,144 Iberdrola S.A. (d) 60,700 850,336 Telefonica S.A. Sponsored ADR (a) 725 19,263 Union Electrica Fenosa, S.A. (d) 55,880 735,904 ---------------- 1,776,647 ---------------- SWITZERLAND - 8.6% Credit Suisse Group 27,900 605,342 Holcim Ltd. 4,835 877,699 Nestle SA 2,080 440,764 Novartis AG 27,800 1,014,334 UBS AG 19,500 947,718 ---------------- 3,885,857 ---------------- UNITED KINGDOM - 20.0% Abbey National plc 63,000 524,366 Amvescap plc 122,500 780,478 BAE Systems plc 248,100 494,283 BP Amoco plc 87,000 598,768 BT Group plc 242,650 761,761 Diageo plc 61,904 673,205 Pilkington plc 618,829 580,323 Rio Tinto plc 57,412 1,145,190 Shell Transport & Trading Co. plc 127,539 839,275 Unilever plc 81,800 778,295 Vodafone AirTouch plc 719,337 1,314,413 WPP Group plc 78,000 592,707 ---------------- 9,083,064 ---------------- FAR EAST - 27.4% ------------------------------ AUSTRALIA - 3.8% BHP Ltd. 186,244 1,064,473 Westpac Banking Corp. Ltd. 85,381 661,074 ---------------- 1,725,547 ---------------- HONG KONG - 4.3% Cathay Pacific Airways 395,000 539,439 Hang Seng Bank 72,000 766,314 Sun Hung Kai Properties Ltd. 107,000 633,902 ---------------- 1,939,655 ---------------- JAPAN - 14.8% Canon Inc. (a) 30,000 1,130,024 Fuji Photo Film Co., Ltd. (a) 11,000 358,726 Kirin Brewery Company, Limited (a)(d) 100,000 636,218 Matsushita Electric Industrial Co. 25,000 246,482 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 43 December 31, 2002 SCHEDULES OF INVESTMENTS IVY INTERNATIONAL VALUE FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Nikko Exchange Traded Index 8,410 $ 606,637 Nintendo Co., Ltd. (a) 8,000 747,619 Nissan Motor Co., Ltd. (a) 115,000 897,362 Nomura Holdings, Inc. 55,000 618,269 Sharp Corporation (a) 66,000 626,797 Sony Corporation 20,500 856,829 ---------------- 6,724,963 ---------------- SOUTH KOREA - 4.5% KT Corporation (a)(d) 40,000 862,000 POSCO 7,000 696,429 Samsung Electronics 1,780 471,245 ---------------- 2,029,674 ---------------- LATIN AMERICA - 4.5% ------------------------------ BRAZIL - 1.8% Embraer Brasileira de Aeronautica S.A. (Embraer) 20,000 318,000 Tele Norte Leste Participacoes S.A. (a) 70,000 514,500 ---------------- 832,500 ---------------- MEXICO - 2.7% Fomento Economico Mexicano, S.A. Sponsored ADR 18,000 655,560 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 737,500 557,495 ---------------- 1,213,055 ---------------- TOTAL INVESTMENTS - 98.4% (Cost - $49,376,967) $ 44,622,749 (Cost on Federal income tax basis - $49,560,018) OTHER ASSETS, LESS LIABILITIES - 1.6% 701,750 ---------------- NET ASSETS - 100% $ 45,324,499 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 4,092,371 Gross unrealized depreciation (8,846,589) ---------------- Net unrealized depreciation for financial statement purposes (4,754,218) Less: tax basis adjustments (183,051) ---------------- Net unrealized depreciation for Federal income tax purposes $ (4,937,269) ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $27,937,651 and $44,893,995, respectively, for the period ended December 31, 2002. IVY PACIFIC OPPORTUNITIES FUND AUSTRALIA - 26.7% Australia & New Zealand Banking Group Ltd. 38,005 $ 371,301 BHP Ltd. 73,748 421,505 NAME OF SECURITY SHARES VALUE Foster's Brewing Group Ltd. 110,849 $ 280,886 Qantas Airways Limited 62,519 134,833 Rio Tinto Ltd. 21,827 417,273 Westpac Banking Corp. Ltd. 51,040 395,184 Woolsworths Ltd. 41,445 266,050 ---------------- 2,287,032 ---------------- HONG KONG - 21.2% Cathay Pacific Airways 250,000 341,418 China Mobile (Hong Kong) Ltd. (a) 92,200 219,316 Hang Lung Properties Ltd. 273,500 264,789 Hang Seng Bank 26,600 283,111 Henderson Land Development Company Ltd. 82,000 246,052 Hutchison Whampoa Ltd. 24,000 150,185 Sun Hung Kai Properties Ltd. 53,000 313,989 ---------------- 1,818,860 ---------------- INDIA - 6.6% Hero Honda Motors Ltd. 62,715 354,971 ITC Ltd. 15,300 210,722 ---------------- 565,693 ---------------- SINGAPORE - 7.4% Capitaland Limited 237,000 151,668 Haw Par Corporation Limited 1,551 2,915 Singapore Press Holdings Ltd. 21,000 220,350 United Overseas Bank Limited 38,000 258,517 ---------------- 633,450 ---------------- SOUTH KOREA - 22.2% Hyundai Motor Co., Ltd. 16,030 375,054 Kookmin Bank 6,141 217,463 Korea Telecom Corporation 4,000 170,988 POSCO 4,980 495,460 Samsung Electronics 1,430 378,584 SK Telecom Co., Ltd. 1,378 266,061 ---------------- 1,903,610 ---------------- TAIWAN - 10.7% Asustek Computer Inc. 54,150 95,000 Hon Hai Precision Industry Co., Ltd. 83,808 289,242 Quanta Computer Inc. 65,550 107,459 Taiwan Semiconductor Manufacturing Company (a) 243,637 298,502 United Microelectronics Corporation 211,858 128,565 ---------------- 918,768 ---------------- TOTAL INVESTMENTS - 94.8% (Cost - $8,502,983) $ 8,127,413 (Cost on Federal income tax basis - $8,828,989) 44 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY SHARES VALUE OTHER ASSETS, LESS LIABILITIES - 5.2% $ 441,284 ---------------- NET ASSETS - 100% $ 8,568,697 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 1,033,235 Gross unrealized depreciation (1,408,805) ---------------- Net unrealized depreciation for financial statement purposes (375,570) Less: tax basis adjustments (326,006) ---------------- Net unrealized depreciation for Federal income tax purposes $ (701,576) ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $1,562,302 and $3,408,651, respectively, for the period ended December 31, 2002. IVY GROWTH FUND EQUITY SECURITIES - 75.4% ------------------------------- AUTOS AND TRANSPORTATION - 1.3% ------------------------------- AIR TRANSPORT - 0.4% JetBlue Airways Corp. (a) 18,600 $ 502,200 ---------------- RECREATIONAL VEHICLES & BOATS - 0.3% Harley-Davidson Inc. 6,570 303,534 ---------------- TRANSPORTATION MISC - 0.6% United Parcel Service Inc. 11,135 702,396 ---------------- CONSUMER DISCRETIONARY - 14.4% ------------------------------ CONSUMER ELECTRONICS - 1.0% Harman International Industries Inc. 9,900 589,050 Take-Two Interactive Software Inc. (a) 25,700 603,693 ---------------- 1,192,743 ---------------- CONSUMER PRODUCTS - 0.6% Gillette Co. 15,245 462,838 Yankee Candle Co. Inc. (a) 18,100 289,600 ---------------- 752,438 ---------------- EDUCATION SERVICES - 2.1% Apollo Group Inc. - University of Phoenix Online (a) 29,766 1,066,813 Career Education Corp. (a) 20,700 828,000 Education Management Corp. (a) 13,400 503,840 ---------------- 2,398,653 ---------------- ENTERTAINMENT - 1.3% The Walt Disney Company 26,225 427,730 Viacom Inc. Cl B (a) 26,430 1,077,287 ---------------- 1,505,017 ---------------- LEISURE TIME - 0.5% Carnival Corp. 22,355 557,757 ---------------- NAME OF SECURITY SHARES VALUE PUBLISHING: NEWSPAPERS - 0.6% Gannett Co. Inc. 9,680 $ 695,024 ---------------- RADIO & TV BROADCASTERS - 0.8% Hispanic Broadcasting Corp. (a) 19,300 396,615 Radio One Inc. Cl D (a) 37,100 535,353 ---------------- 931,968 ---------------- RESTAURANTS - 0.6% Panera Bread Co. (a) 18,900 657,909 ---------------- RETAIL - 4.0% A.C. Moore Arts & Crafts Inc. (a) 34,400 437,224 Kohl's Corp. (a) 5,380 301,011 Lowe's Companies, Inc. 13,665 512,437 Home Depot, Inc. 25,185 603,433 Pacific Sunwear of California Inc. (a) 7,550 133,559 Target Corporation 15,350 460,500 Wal-Mart Stores, Inc. 43,480 2,196,175 ---------------- 4,644,339 ---------------- SERVICES: COMMERCIAL - 2.9% Advisory Board Co. (a) 13,600 406,640 BearingPoint Inc. (a) 23,600 162,840 Coinstar Inc. (a) 14,600 330,690 Copart Inc. (a) 60,150 712,176 eBay Inc. (a) 7,500 508,650 Robert Half International Inc. 22,500 362,475 Waste Connections Inc. (a) 24,300 938,223 ---------------- 3,421,694 ---------------- CONSUMER STAPLES - 5.2% ------------------------------ BEVERAGE: BREWERS (WINERIES) - 0.6% Anheuser-Busch Companies, Inc. 14,440 698,896 ---------------- BEVERAGE: SOFT DRINKS - 1.6% The Coca-Cola Company 21,945 961,630 PepsiCo, Inc. 22,450 947,839 ---------------- 1,909,469 ---------------- FOODS - 0.4% Sysco Corp. 15,232 453,761 ---------------- SOAPS & HOUSEHOLD CHEMICALS - 1.6% Colgate-Palmolive Co. 11,875 622,606 Procter & Gamble Co. 14,490 1,245,271 ---------------- 1,867,877 ---------------- TOBACCO - 1.0% Philip Morris Cos. Inc. 28,390 1,150,647 ---------------- FINANCIAL SERVICES - 10.2% ------------------------------ BANKS: OUTSIDE NEW YORK CITY - 4.9% Bank of America Corp. 16,645 1,157,993 Bank One Corp. 15,775 576,576 BB&T Corp. 12,650 467,924 Fifth Third Bancorp 7,830 458,446 State Street Corp. 11,800 460,200 SunTrust Banks Inc. 6,810 387,625 U.S. Bancorp 26,165 555,221 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 45 December 31, 2002 SCHEDULES OF INVESTMENTS IVY GROWTH FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Wachovia Corp. 19,665 $ 716,593 Wells Fargo & Co. 20,540 962,710 ---------------- 5,743,288 ---------------- DIVERSIFIED FINANCIAL SERVICES - 1.6% American Express Company 17,930 633,825 The Goldman Sachs Group, Inc. 5,375 366,037 Merrill Lynch & Co., Inc. 10,735 407,393 Morgan Stanley 12,840 512,573 ---------------- 1,919,828 ---------------- FINANCIAL DATA PROCESSING SERVICES & SYSTEMS - 1.6% Affiliated Computer Services Inc. (a) 16,400 863,460 Automatic Data Processing Inc. 13,885 544,986 First Data Corp. 14,285 505,832 ---------------- 1,914,278 ---------------- INSURANCE: MULTI-LINE - 1.3% American International Group Inc. 27,035 1,563,975 ---------------- SAVINGS & LOAN - 0.5% Washington Mutual, Inc. 17,300 597,369 ---------------- SECURITIES BROKERAGE & SERVICES - 0.3% Lehman Brothers Holdings Inc. 5,845 311,480 ---------------- HEALTH CARE - 16.4% ------------------------------ BIOTECHNOLOGY RESEARCH & PRODUCTION - 2.0% Amgen Inc. (a) 17,400 841,116 Cephalon Inc. (a) 3,700 180,072 Charles River Laboratories International Inc. (a) 11,300 434,824 ICOS Corp. (a) 9,700 227,077 Integra LifeSciences Holdings Corp. (a) 37,100 654,815 ---------------- 2,337,904 ---------------- DRUGS & PHARMACEUTICALS - 6.9% Abbott Laboratories 15,685 627,400 Bristol-Myers Squibb Co. 25,470 589,630 Eli Lilly & Co. 13,165 835,978 Gilead Sciences Inc. (a) 10,400 353,600 Medicis Pharmaceutical Corp. (a) 15,100 750,017 Merck & Co., Inc. 22,940 1,298,633 Pfizer Inc. 59,420 1,816,469 Pharmacia Corporation 19,270 805,486 Schering-Plough Corporation 18,400 408,480 Wyeth 15,325 573,155 ---------------- 8,058,848 ---------------- ELECTRONICS: MEDICAL SYSTEMS - 0.9% Intuitive Surgical Inc. (a) 55,500 341,880 Medtronic, Inc. 16,125 735,300 ---------------- 1,077,180 ---------------- NAME OF SECURITY SHARES VALUE HEALTH CARE FACILITIES - 1.1% Pharmaceutical Product Development Inc. (a) 16,000 $ 468,320 United Surgical Partners International Inc. (a) 50,900 795,109 ---------------- 1,263,429 ---------------- HEALTH CARE MANAGEMENT SERVICES - 3.5% AMERIGROUP Corp. (a) 20,900 633,479 Amsurg Inc. (a) 47,700 974,511 Centene Corp. (a) 16,900 567,671 Cerner Corp. (a) 9,700 303,222 Community Health Systems Inc. (a) 31,800 654,762 Orthodontic Centers of America Inc. (a) 26,900 293,479 UnitedHealth Group Inc. 8,480 708,080 ---------------- 4,135,204 ---------------- HEALTH CARE SERVICES - 1.4% Accredo Health Inc. (a) 22,050 777,263 Odyssey HealthCare Inc. (a) 13,100 454,570 Province Healthcare Co. (a) 38,200 371,686 ---------------- 1,603,519 ---------------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES - 0.6% Cytyc Corp. (a) 33,400 340,680 SonoSite Inc. (a) 27,700 362,039 ---------------- 702,719 ---------------- INTEGRATED OILS - 2.6% ------------------------------ OIL: INTEGRATED DOMESTIC -0.3% ConocoPhillips 8,420 407,444 ---------------- OIL: INTEGRATED INTERNATIONAL - 2.3% ChevronTexaco Corp. 12,827 852,739 Exxon Mobil Corp. 51,480 1,798,711 ---------------- 2,651,450 ---------------- OTHER - 6.6% ------------------------------ MULTI-SECTOR COMPANIES - 6.6% 3M Co. 5,240 646,092 General Electric Company 91,920 2,238,252 ITT Industries Inc. 8,515 516,775 Gen-Probe Inc. (a) 9,500 226,090 MTC Technologies Inc. (a) 20,900 528,770 Standard & Poor's Depositary Receipts 39,695 3,504,672 ---------------- 7,660,651 ---------------- OTHER ENERGY - 3.7% ------------------------------ MACHINERY: OIL WELL EQUIP & SERV - 1.2% BJ Services Co. (a) 9,800 316,638 Key Energy Services Inc. (a) 39,000 349,830 National-Oilwell Inc. (a) 14,300 312,312 46 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY SHARES VALUE Noble Corp. (a) 3,350 $ 117,753 Weatherford International Ltd. (a) 7,200 287,496 ---------------- 1,384,029 ---------------- OFFSHORE DRILLING - 0.5% GlobalSantaFe Corp. 12,200 296,704 Rowan Companies, Inc. 14,500 329,150 ---------------- 625,854 ---------------- OIL: CRUDE PRODUCERS - 2.0% Anadarko Petroleum Corp. 6,875 329,313 Chesapeake Energy Corp. 38,200 295,668 PetroQuest Energy Inc. (a) 46,600 193,390 Pioneer Natural Resources Co. 18,900 477,225 Remington Oil & Gas Corp. (a) 14,900 244,509 XTO Energy Inc. 30,000 741,000 ---------------- 2,281,105 ---------------- PRODUCER DURABLES - 2.5% ------------------------------ AEROSPACE - 1.6% Lockheed Martin Corporation 9,580 553,245 United Technologies Corporation 12,725 788,186 Veridian Corp. (a) 27,000 576,180 ---------------- 1,917,611 ---------------- PRODUCTION TECHNOLOGY EQUIPMENT - 0.9% Applied Materials, Inc. (a) 55,000 716,650 KLA-Tencor Corp. (a) 10,000 353,700 ---------------- 1,070,350 ---------------- TECHNOLOGY - 10.7% ------------------------------ COMMUNICATIONS TECHNOLOGY - 3.2% Cisco Systems, Inc. (a) 143,370 1,878,147 L-3 Communications Holdings Inc. (a) 14,800 664,668 Motorola, Inc. 38,539 333,362 UTStarcom Inc. (a) 18,000 356,940 Verisity Ltd. (a) 23,100 440,286 ---------------- 3,673,403 ---------------- COMPUTER SERVICES SOFTWARE & SYSTEMS - 4.3% Caci International Inc-Cl A (a) 22,900 816,156 ManTech International Corp. (a) 11,700 223,119 Microsoft Corporation (a) 49,765 2,572,851 NetScreen Technologies Inc. (a) 39,400 663,496 PEC Solutions Inc. (a) 10,300 307,970 Symantec Corp. (a) 10,300 416,635 ---------------- 5,000,227 ---------------- COMPUTER TECHNOLOGY - 2.5% Dell Computer Corporation (a) 35,000 935,900 Hewlett-Packard Company 38,580 669,749 International Business Machines Corp. 16,880 1,308,200 ---------------- 2,913,849 ---------------- ELECTRONICS - 0.4% Flir Systems Inc. (a) 10,600 517,280 ---------------- ELECTRONICS: TECHNOLOGY - 0.3% General Dynamics Corporation 4,450 353,197 ---------------- NAME OF SECURITY SHARES VALUE UTILITIES - 1.8% ------------------------------ UTILITIES: CABLE TV & RADIO - 0.7% Comcast Corp. (a) 33,810 $ 796,902 ---------------- UTILITIES: TELECOMMUNICATIONS - 1.1% Alltel Corp. 6,000 306,000 Intrado Inc. (a) 35,700 354,465 Verizon Communications 15,000 581,250 ---------------- 1,241,715 ---------------- TOTAL INVESTMENTS - 75.4% (Cost - $86,180,907) $ 88,070,410 (Cost on Federal income tax basis - $87,694,767) OTHER ASSETS, LESS LIABILITIES - 24.6% 28,720,204 ---------------- NET ASSETS - 100% $ 116,790,614 ================ Other Information: At December 31, 2002, net unrealized appreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 10,563,116 Gross unrealized depreciation (8,673,613) ---------------- Net unrealized appreciation for financial statement purposes 1,889,503 Less: tax basis adjustments (1,513,860) ---------------- Net unrealized appreciation for Federal income tax purposes $ 375,643 ================ Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $122,934,339 and $164,263,943, respectively, for the period ended December 31, 2002. IVY US BLUE CHIP FUND EQUITY SECURITIES - 99.7% ------------------------------ CONSUMER DISCRETIONARY - 12.8% ------------------------------ AOL Time Warner Inc. (a) 21,320 $ 279,292 Bed Bath & Beyond Inc. (a) 4,535 156,594 Carnival Corp 7,820 195,109 Comcast Corporation (a) 16,166 381,033 eBay Inc. (a) 1,250 84,775 Gannett Co., Inc. 2,995 215,041 General Motors Corporation 3,845 141,727 Harley-Davidson Inc. 3,535 163,317 Home Depot, Inc. 13,575 325,257 Kohl's Corporation (a) 2,655 148,547 Lowe's Companies, Inc. 6,575 246,563 Pulte Homes, Inc. 2,815 134,754 Target Corporation 8,125 243,750 The Walt Disney Company 13,955 227,606 Viacom Inc. Cl B (a) 10,970 447,137 Wal-Mart Stores, Inc. 22,730 1,148,092 ---------------- 4,538,594 ---------------- CONSUMER STAPLES - 9.3% ------------------------------ Anheuser-Busch Companies, Inc. 6,125 296,450 Colgate-Palmolive Company 4,415 231,478 Gillette Company 8,165 247,889 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 47 December 31, 2002 SCHEDULES OF INVESTMENTS IVY US BLUE CHIP FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Kimberly-Clark Corporation 2,930 $ 139,087 PepsiCo, Inc. 10,520 444,154 Philip Morris Companies Inc. 12,430 503,788 Sysco Corporation 6,650 198,104 The Coca-Cola Company 11,405 499,767 The Procter & Gamble Company 7,065 607,166 Walgreen Co. 4,915 143,469 ---------------- 3,311,352 ---------------- ENERGY - 5.8% ------------------------------ Anadarko Petroleum Corporation 2,865 137,234 ChevronTexaco Corporation 7,050 468,684 ConocoPhillips 4,255 205,899 Exxon Mobil Corporation 34,585 1,208,400 Noble Corporation (a) 1,175 41,301 ---------------- 2,061,518 ---------------- FINANCIALS - 19.8% ------------------------------ American Express Company 9,425 333,174 American International Group, Inc. 14,245 824,073 Bank of America Corporation 8,855 616,042 Bank One Corporation 8,535 311,954 BB&T Corporation 6,200 229,338 Citigroup Inc. 24,715 869,721 Fannie Mae 6,565 422,326 Fifth Third Bancorp 4,080 238,884 Freddie Mac 4,195 247,715 J.P. Morgan Chase and Co. 10,880 261,120 Lehman Brothers Holdings Inc. 2,685 143,084 Merrill Lynch & Co., Inc. 6,375 241,931 Morgan Stanley 5,990 239,121 State Street Corporation 4,885 190,515 SunTrust Banks, Inc. 3,500 199,220 The Goldman Sachs Group, Inc. 2,820 192,042 U.S. Bancorp 15,245 323,499 Wachovia Corporation 10,130 369,137 Washington Mutual, Inc. 8,515 294,023 Wells Fargo & Company 10,480 491,198 ---------------- 7,038,117 ---------------- HEALTH CARE - 14.1% ------------------------------ Abbott Laboratories 8,115 324,600 Amgen Inc. (a) 7,470 361,100 Bristol-Myers Squibb Company 12,005 277,916 Eli Lilly and Company 6,330 401,955 Johnson & Johnson 14,155 760,265 Medtronic, Inc. 7,470 340,632 Merck & Co., Inc. 11,465 649,034 Pfizer Inc. 27,855 851,527 Pharmacia Corporation 7,985 333,773 Schering-Plough Corporation 9,600 213,120 UnitedHealth Group Incorporated 2,445 204,158 Wyeth 8,060 301,444 ---------------- 5,019,524 ---------------- INDUSTRIALS - 10.9% ------------------------------ 3M Co. 2,750 339,075 Automatic Data Processing, Inc. 6,005 235,696 First Data Corporation 6,745 238,841 General Dynamics Corporation 2,335 185,329 General Electric Company 48,225 1,174,279 NAME OF SECURITY SHARES VALUE Honeywell International Inc. 8,520 $ 204,480 ITT Industries, Inc. 2,360 143,229 Lockheed Martin Corporation 4,505 260,164 The Boeing Company 7,490 247,095 Tyco International Ltd. 13,530 231,092 United Parcel Service, Inc. 5,855 369,333 United Technologies Corporation 3,780 234,133 ---------------- 3,862,746 ---------------- INFORMATION TECHNOLOGY - 13.9% ------------------------------ Analog Devices, Inc. (a) 2,100 50,127 Applied Materials, Inc. (a) 14,910 194,277 Cisco Systems, Inc. (a) 40,765 534,021 Dell Computer Corporation (a) 15,705 419,952 Hewlett-Packard Company 19,295 334,961 Intel Corporation 34,410 535,764 International Business Machines Corp. 8,665 671,538 Linear Technology Corporation 2,060 52,983 Maxim Integrated Products, Inc. 2,210 73,018 Microsoft Corporation (a) 26,460 1,367,982 Motorola, Inc. 17,450 150,943 Oracle Corporation (a) 33,960 366,768 Texas Instruments Inc. 13,845 207,813 ---------------- 4,960,147 ---------------- MATERIALS - 2.4% ------------------------------ Air Products and Chemicals, Inc. 3,430 146,632 Alcoa Inc. 9,710 221,194 Du Pont E.I. du Pont de Nemours and Company 6,995 296,588 International Paper Company 5,505 192,510 ---------------- 856,924 ---------------- MISCELLANEOUS - 4.6% ------------------------------ S&P 500 Depository Receipts 18,395 1,624,095 ---------------- TELECOMMUNICATION SERVICES - 3.9% ------------------------------ Alltel Corporation 2,490 126,990 AT&T Corp. 3,523 91,985 BellSouth Corporation 8,825 228,303 SBC Communications Inc. 15,910 431,320 Verizon Communications 13,120 508,400 ---------------- 1,386,998 ---------------- UTILITIES - 2.2% ------------------------------ DTE Energy Company 3,815 177,016 Exelon Corporation 4,175 220,315 FPL Group, Inc. 3,010 180,991 The Southern Company 7,865 223,287 ---------------- 801,609 ---------------- TOTAL INVESTMENTS - 99.7% (Cost - $34,893,096) $ 35,461,624 (Cost on Federal income tax basis - $37,030,200) OTHER ASSETS, LESS LIABILITIES - 0.3% 92,539 ---------------- NET ASSETS - 100% $ 35,554,163 ================ 48 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized appreciation (depreciation) based on cost for financial statement and Federal Income tax purposes, respectively, is as follows: Gross unrealized appreciation $ 3,348,563 Gross unrealized depreciation (2,780,035) ---------------- Net unrealized appreciation for financial statement purposes 568,528 Less: tax basis adjustments (2,137,104) ---------------- Net unrealized depreciation for Federal income tax purposes $ (1,568,576) ================ Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $39,743,614 and $51,310,230, respectively, for the period ended December 31, 2002. IVY US EMERGING GROWTH FUND EQUITY SECURITIES - 76.2% ------------------------------ AUTOS AND TRANSPORTATION -0.7% ------------------------------ TRANSPORTATION MISC - 0.7% C.H. Robinson Worldwide Inc. 6,400 $ 199,680 ---------------- CONSUMER DISCRETIONARY - 28.2% ------------------------------ ADVERTISING AGENCIES - 2.5% Lamar Advertising Co. (a) 21,400 720,110 ---------------- CONSUMER ELECTRONICS - 3.6% Electronic Arts Inc. (a) 5,600 278,712 Harman International Industries Inc. 6,100 362,950 Take-Two Interactive Software Inc. (a) 16,026 376,451 ---------------- 1,018,113 ---------------- COSMETICS - 1.4% Estee Lauder Cos. 14,900 393,360 ---------------- EDUCATION SERVICES - 2.6% Apollo Group Inc. - University of Phoenix Online (a) 11,749 421,084 Education Management Corp. (a) 8,317 312,719 ---------------- 733,803 ---------------- RADIO & TV BROADCASTERS - 4.2% Cox Radio Inc. (a) 24,950 569,109 Hispanic Broadcasting Corp. (a) 13,400 275,370 Radio One Inc. Cl D (a) 23,800 343,434 ---------------- 1,187,913 ---------------- RESTAURANTS - 2.4% Krispy Kreme Doughnuts Inc. (a) 8,000 270,160 Panera Bread Co. (a) 12,000 417,720 ---------------- 687,880 ---------------- SERVICES: COMMERCIAL - 11.5% Advisory Board Co. (a) 8,500 254,150 BearingPoint Inc. (a) 17,500 120,750 NAME OF SECURITY SHARES VALUE Convergys Corp. (a) 38,000 $ 575,700 Copart Inc. (a) 37,150 439,856 Corporate Executive Board Co. (a) 8,900 284,088 eBay Inc. (a) 4,600 311,972 Waste Connections Inc. (a) 15,200 586,872 Weight Watchers International Inc. (a) 14,650 673,461 ---------------- 3,246,849 ---------------- FINANCIAL SERVICES - 7.9% ------------------------------ BANKS: OUTSIDE NEW YORK CITY - 2.0% Synovus Financial Corp. 29,650 575,210 ---------------- FINANCIAL DATA PROCESSING SERVICES & SYSTEMS - 4.3% Affiliated Computer Services Inc. (a) 10,421 548,666 Concord EFS Inc. (a) 42,900 675,246 ---------------- 1,223,912 ---------------- SAVINGS & LOAN - 1.6% Charter One Financial Inc. 16,150 463,989 ---------------- HEALTH CARE - 17.8% ------------------------------ BIOTECHNOLOGY RESEARCH & PRODUCTION - 4.2% Cephalon Inc. (a) 4,400 214,139 Charles River Laboratories International Inc. (a) 7,500 288,600 Integra LifeSciences Holdings Corp. (a) 22,822 402,808 Neurocrine Biosciences Inc. (a) 3,150 143,829 NPS Pharmaceuticals Inc. (a) 5,750 144,728 ---------------- 1,194,104 ---------------- DRUGS & PHARMACEUTICALS - 2.6% Gilead Sciences Inc. (a) 6,300 214,200 Medicis Pharmaceutical Corp. (a) 10,369 515,028 ---------------- 729,228 ---------------- HEALTH CARE FACILITIES - 1.3% Laboratory Corp. of America Holdings (a) 15,850 368,354 ---------------- HEALTH CARE MANAGEMENT SERVICES - 2.2% Amsurg Inc. (a) 30,223 617,456 ---------------- HEALTH CARE SERVICES - 4.3% Accredo Health Inc. (a) 13,516 476,439 Odyssey HealthCare Inc. (a) 8,600 298,420 Stericycle Inc. (a) 13,400 433,879 ---------------- 1,208,738 ---------------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES - 3.2% Biomet Inc. 20,150 577,499 Henry Schein Inc. (a) 7,200 324,000 ---------------- 901,499 ---------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 49 December 31, 2002 SCHEDULES OF INVESTMENTS IVY US EMERGING GROWTH FUND (CONTINUED) NAME OF SECURITY SHARES VALUE OTHER ENERGY - 4.8% ------------------------------ MACHINERY: OIL WELL EQUIP & SERV - 1.4% BJ Services Co. (a) 6,000 $ 193,860 National-Oilwell Inc. (a) 9,200 200,928 ---------------- 394,788 ---------------- OFFSHORE DRILLING - 0.7% GlobalSantaFe Corp. 7,500 182,400 ---------------- OIL: CRUDE PRODUCERS - 2.7% Pioneer Natural Resources Co. (a) 12,300 310,575 XTO Energy Inc. 18,557 458,358 ---------------- 768,933 ---------------- PRODUCER DURABLES - 3.7% ------------------------------ ELECTRICAL EQUIPMENT & COMPONENTS - 1.4% Molex Inc. 20,200 401,778 ---------------- IDENTIFICATION CONTROL & FILTER DEVICES - 1.5% IDEX Corp. 12,800 418,560 ---------------- MANUFACTURING - 0.8% Federal Signal Corp. 11,350 220,417 ---------------- TECHNOLOGY - 13.1% ------------------------------ COMMUNICATIONS TECHNOLOGY - 2.3% L-3 Communications Holdings Inc. (a) 9,200 413,172 UTStarcom Inc. (a) 11,200 222,096 ---------------- 635,268 ---------------- COMPUTER SERVICES SOFTWARE & SYSTEMS - 3.9% CACI International Inc-Cl A (a) 8,434 300,588 Mercury Interactive Corp. (a) 8,600 254,990 NetScreen Technologies Inc. (a) 24,900 419,316 Siebel Systems Inc. (a) 18,450 136,530 ---------------- 1,111,424 ---------------- COMPUTER TECHNOLOGY - 2.8% McDATA Corp. (a) 29,150 206,965 Network Appliance Inc. (a) 59,050 590,500 ---------------- 797,465 ---------------- ELECTRONICS: SEMI-CONDUCTORS/ COMPONENTS - 4.1% Analog Devices Inc. (a) 9,050 216,023 Intersil Corp. (a) 23,650 329,681 Marvell Technology Group Ltd. (a) 9,700 182,942 Microchip Technology Inc. (a) 17,450 426,653 ---------------- 1,155,299 ---------------- TOTAL INVESTMENTS - 76.2% (Cost $20,161,386) $ 21,556,530 (Cost on Federal income tax basis - $20,358,490) OTHER ASSETS, LESS LIABILITIES - 23.8% 6,746,877 ---------------- NET ASSETS - 100% $ 28,303,407 ================ NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized appreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 2,607,017 Gross unrealized depreciation (1,211,873) ---------------- Net unrealized appreciation for financial statement purposes 1,395,144 Less: tax basis adjustments (197,104) ---------------- Net unrealized appreciation for Federal income tax purposes $ 1,198,040 ================ Purchases and sale proceeds of securities other than short-term obligations aggregated $49,467,304 and $74,354,189, respectively, for the period ended December 31, 2002. IVY BOND FUND NAME OF SECURITY PRINCIPAL VALUE U.S. CORPORATE BONDS - 91.5% ------------------------------ Allied Waste, 7.625%, 01/01/2006(e) $ 250,000 $ 248,750 American Standard, 7.375%, 04/15/2005(e) 480,000 499,200 BRE Properties Inc., 7.125%, 02/15/2013 2,000,000 2,197,500 Calpine Corp, 8.5%, 02/15/2011(e) 1,000,000 435,000 CBS Corp., 7.125%, 11/01/2023 1,000,000 1,102,500 Citigroup Inc, 6.50%, 01/18/2011 1,000,000 1,122,500 Coca-Cola Enterprises, 5.38%, 08/15/2006 500,000 541,875 Countrywide Home, 5.50%, 08/01/2006 500,000 531,875 Daimlerchrysler, 7.75%, 01/18/2011 500,000 571,250 Darden Restaurants Inc., 7.125%, 02/01/2016 1,250,000 1,404,687 Dean Foods Co 6.75%, 06/15/2005(e) 650,000 651,625 Dell Computer Corporation, 6.55%, 04/15/2008 500,000 561,875 Delta Air Lines, 9.59%, 01/12/2017 1,500,000 1,066,530 Ford Motor Credit Company, 7.375%, 10/28/2009 1,000,000 991,250 Grupo Televisa 8.000% 09/13/2011 625,000 651,562 HCA Inc. 6.30%, 10/01/2012 1,000,000 1,008,750 Heller Financial, 6.375%, 03/15/2006 425,000 471,219 Hertz Corp, 7.4%, 03/01/2011 1,000,000 945,000 Household Financial Corp, 6.50%, 01/24/2006 1,000,000 1,065,000 Indiantown Cogeneration, 9.77%, 12/15/2020 1,500,000 1,618,125 International Paper Company, 7.625%, 01/15/2007 1,000,000 1,142,500 50 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued) NAME OF SECURITY PRINCIPAL VALUE Kansas Gas & El Wr, 7.6%, 12/15/2003(e) $ 500,000 $ 506,875 Key Energy Services, Inc. 8.375%, 03/01/2008(e) 500,000 522,500 McKesson Corporation, 7.75%, 02/01/2012 500,000 574,375 Meritor Automotive, 6.80%, 02/15/2009 1,000,000 988,750 News America Holdings, 7.70%, 10/30/2025 1,000,000 1,028,750 Northrop Grumman Corp., 9.375%, 10/15/2024 2,000,000 2,225,000 Pulte Corp., 7.625%, 10/15/2017 1,500,000 1,580,625 RJ Reynolds Tobacco Holdings Inc., 7.375%, 05/15/2003 2,000,000 2,025,000 Spieker Properties, 7.35%, 12/01/2017 1,950,000 2,064,563 Storage USA Partnership L.P., 8.20%, 06/01/2017 2,240,000 2,769,200 TE Products Pipeline Co., 7.51%, 01/15/2028 2,000,000 1,862,500 Tele Communications Inc., 9.25%, 01/15/2023 2,000,000 2,050,000 Telefonos de Mexico SA de CV (Telmex), 8.25%, 01/26/2006 500,000 547,500 Tenet Healthcare Corporation, 6.375%, 12/01/2011 750,000 675,000 Time Warner Inc., 9.125%, 01/15/2013 1,000,000 1,172,500 Time Warner Inc., 9.15%, 02/01/2023 1,500,000 1,723,125 Transocean Sedco Forex Inc. 6.50% 04/15/2003 647,000 653,470 Unisys Corporation, 7.875%, 04/01/2008(e) 550,000 561,000 US Bank NA, 6.30%, 02/04/2014 1,000,000 1,125,000 Verizon Global Fdg Corp 7.25%, 12/01/2010 1,000,000 1,136,250 Wal-Mart Stores, Inc., 6.55%, 08/10/2004 500,000 537,500 Watson Pharmaceuticals, 7.125%, 05/15/2008 1,500,000 1,573,125 ---------------- (Cost $45,499,753) 46,731,181 ---------------- U.S. DOLLAR DENOMINATED FOREIGN CORPORATE BONDS - 3.2% ------------------------------ Abitibi Consold, 7.50%, 04/01/2028 1,000,000 946,250 Corp Durango Sa 13.125%, 08/01/2006(e) 978,000 347,190 PEMEX Master Trust, 8.00%, 11/15/2011 (f) 300,000 322,500 ---------------- (Cost $2,279,607) 1,615,940 ---------------- SHARES VALUE WARRANTS - 0.0% ------------------------------ Chesapeake Energy Warrants - 144A (f) 2,671 $ -- Chesapeake Energy Warrants - 144A (f) 1,324 -- Gothic Energy Restricted Warrants (f) 4,767 -- ---------------- (Cost $0) -- ---------------- TOTAL INVESTMENTS - 94.7% (Cost - $47,779,360) (b) $ 48,347,121 OTHER ASSETS, LESS LIABILITIES - 5.3% 2,718,838 ---------------- NET ASSETS - 100% $ 51,065,959 ================ Other Information: At December 31, 2002, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 2,698,351 Gross unrealized depreciation (2,130,590) ---------------- Net unrealized appreciation $ 567,761 ================ Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $7,993,342 and $17,732,005, respectively, for the period ended December 31, 2002. IVY MONEY MARKET FUND NAME OF SECURITY PRINCIPAL VALUE U.S. GOVERNMENT AGENCY OBLIGATIONS - 88.9% ------------------------------ Federal Home Loan Bank, 1.28%, 01/08/2003 $2,000,000 $ 1,999,573 Federal Home Loan Bank, 1.30%, 01/17/2003 5,209,000 5,206,179 Federal Home Loan Mortgage Corp., 1.28%, 01/07/2003 2,000,000 1,999,644 Federal National Mortgage Association Discount Note, 1.26%, 01/03/2003 2,000,000 1,999,930 Federal National Mortgage Association Discount Note, 1.27%, 01/02/2003 2,000,000 2,000,000 Federal National Mortgage Association Discount Note, 1.28%, 01/22/2003 2,000,000 1,998,578 Federal National Mortgage Association Discount Note, 1.28%, 01/03/2003 2,000,000 1,999,929 Federal National Mortgage Association Discount Note, 1.28%, 01/06/2003 2,000,000 1,999,716 ---------------- 19,203,549 ---------------- COMMERCIAL PAPER - 11.2% ------------------------------ Anheuser-Busch Companies, Inc., 1.3%, 01/16/2003 500,000 499,747 BellSouth Corporation, 1.32%, 01/13/2003 500,000 499,798 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 51 December 31, 2002 SCHEDULES OF INVESTMENTS IVY MONEY MARKET FUND (CONTINUED) NAME OF SECURITY PRINCIPAL VALUE BOC Group plc, 1.2%, 01/02/2003 $ 483,000 $ 483,000 Emerson Electric Co., 1.4%, 01/06/2003 434,000 433,933 USAA Capital Corporation, 1.35%, 01/10/2003 500,000 499,850 ---------------- 2,416,328 ---------------- TOTAL INVESTMENTS - 100.1% (Cost - $21,619,877) (b) $ 21,619,877 OTHER LIABILITIES, LESS ASSETS - (0.1%) (18,028) ---------------- NET ASSETS - 100% $ 21,601,849 ================ Footnotes --------- (a) Non-income producing security (b) Cost is approximately the same for Federal income tax purposes. (c) Security valued in good faith by the Valuation Sub-Committee of the Board of Trustees. See Note 1 to the Financial Statements. (d) As of December 31, 2002, a portion of the securities are on loan. The market value at December 31, 2002 of all securities on loan for Ivy International Fund and Ivy International Value Fund is $12,844,759 and $2,554,332, respectively. See Note 1 to the Financial Statements. (e) Below investment grade security. (f) 144A restricted security. (g) Security used as collateral for call options written at December 31, 2002. ADR - American Depository Receipt GDR - Global Depository Receipt 52 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. (This page intentionally left blank) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 53 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2002 IVY CUNDILL GLOBAL IVY DEVELOPING IVY EUROPEAN IVY GLOBAL VALUE FUND MARKETS FUND OPPORTUNITIES FUND FUND ASSETS Investments, at value (a) $3,874,301 $ 4,192,766 $ 70,358,412 $ 4,569,584 Investments of cash collateral for securities loaned at identified cost and value - - - - Cash 1,593,596 6,910 - 39,376 Receivables Put options purchased, at value Investments sold - - 1,405 - Premiums on call options written - - - - Fund shares sold 203,468 2,400 100 - Dividends, interest and tax reclaims 5,703 12,266 110,305 14,619 Manager for expense reimbursement 9,692 3,658 - - Unrealized appreciation on forward foreign currency contracts 21,233 - - - Other assets 11,643 13,713 15,690 20,058 -------------------------------------------------------------------------- Total assets 5,719,636 4,231,713 70,485,912 4,643,637 -------------------------------------------------------------------------- LIABILITIES Payables Call options written, at value - - - - Distributions to shareholders - 92 - - Investments purchased 126,238 - - 2,531 Collateral for securities loaned, at value - - - - Premiums on put options purchased - - - - Fund shares repurchased - 28,048 142,422 6,588 Management fee 2,197 1,782 28,517 1,909 12b-1 service and distribution fees 1,158 1,064 20,032 842 Transfer agent fee 1,059 3,348 28,959 3,039 Other payables to related parties 808 769 5,212 781 Unrealized depreciation on open forward foreign currency contracts 76,131 - - - Due to custodian - - 18,390 - Accrued expenses 17,445 16,196 80,703 25,204 -------------------------------------------------------------------------- Total liabilities 225,036 51,299 324,235 40,894 -------------------------------------------------------------------------- NET ASSETS $5,494,600 $ 4,180,414 $ 70,161,677 $ 4,602,743 ========================================================================== CLASS A Net Assets $1,402,718 $ 2,210,078 $ 20,451,607 $ 3,339,028 Outstanding Shares 167,278 398,056 1,549,179 482,150 Net asset value and redemption price per share $ 8.39 $ 5.55 $ 13.20 $ 6.93 Maximum offering price per share* $ 8.90 $ 5.89 $ 14.01 $ 7.35 -------------------------------------------------------------------------- CLASS B Net Assets $2,089,392 $ 1,490,261 $ 24,627,281 $ 1,123,622 Outstanding Shares 251,198 282,330 1,904,191 172,929 Net asset value, offering price and redemption price** per share $ 8.32 $ 5.28 $ 12.93 $ 6.50 -------------------------------------------------------------------------- CLASS C Net Assets $ 445,672 $ 433,339 $ 19,324,187 $ 71,937 Outstanding Shares 53,962 81,731 1,488,760 11,565 Net asset value, offering price and redemption price*** per share $ 8.26 $ 5.30 $ 12.98 $ 6.22 -------------------------------------------------------------------------- CLASS ADVISOR Net Assets $1,515,161 $ 46,736 $ 5,728,759 $ 68,156 Outstanding Shares 181,587 8,395 429,567 9,851 Net asset value, offering price and redemption price per share $ 8.34 $ 5.57 $ 13.34 $ 6.92 -------------------------------------------------------------------------- CLASS I Net Assets $ 41,657 $ na $ 29,843 $ na Outstanding Shares 5,013 na 2,241 na Net asset value, offering price and redemption price per share $ 8.31 $ na $ 13.32 $ na -------------------------------------------------------------------------- NET ASSETS CONSIST OF Capital paid-in $6,269,783 $ 16,874,392 $157,296,907 $ 8,169,576 Accumulated net realized gain/(loss) on investments and foreign currency transactions (539,887) (11,984,839) (56,367,674) (2,858,914) Undistributed (accumulated) net investment income (loss) (261) (36,083) - (1,266) Net unrealized appreciation (depreciation) on investments and foreign currency transactions (235,035) (673,056) (30,767,556) (706,653) -------------------------------------------------------------------------- NET ASSETS $5,494,600 $ 4,180,414 $ 70,161,677 $ 4,602,743 ========================================================================== (a) Investments, identified cost $4,055,193 $ 4,866,013 $101,136,872 $ 5,277,698 -------------------------------------------------------------------------- * On sales of more than $50,000 the offering price is reduced. Maximum sales charge (load) is 5.75% for all Funds except Ivy Bond Fund and Ivy Money Market Fund. Ivy Bond Fund's sales charge is 4.75%; Ivy Money Market Fund does not have a sales charge. ** Subject to a maximum deferred sales charge of 5%. *** Subject to a maximum deferred sales charge of 1%. 54 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF ASSETS AND LIABILITIES (continued) December 31, 2002 IVY GLOBAL NATURAL IVY GLOBAL SCIENCE IVY INTERNATIONAL IVY INTERNATIONAL RESOURCES FUND & TECHNOLOGY FUND FUND SMALL COMPANIES FUND $30,832,160 $ 8,238,612 $ 206,804,311 $ 4,124,492 - - 13,597,770 - 573,676 1,975,273 1,888,965 - 11,270 - - - 164,424 - 28,823 - - 40,860 8 7,677 - 33,418 660 2,480,146 10,962 5,908 - - 3,823 - - - - 23,584 12,971 51,155 21,700 -------------------------------------------------------------------------------------- 31,509,606 10,267,617 224,830,024 4,325,401 -------------------------------------------------------------------------------------- - 28,190 - - 52 - 136 - - 17,792 360,803 - - - 13,597,770 - - 12,294 - - 19,164 50,725 413,706 5,645 12,856 4,241 87,213 1,696 7,375 2,599 43,861 1,138 10,222 15,727 64,742 3,526 2,466 1,605 11,730 760 - - - - - - - 135,466 28,342 22,406 218,461 27,264 -------------------------------------------------------------------------------------- 80,477 155,579 14,798,422 175,495 -------------------------------------------------------------------------------------- $31,429,129 $ 10,112,038 $ 210,031,602 $ 4,149,906 ====================================================================================== $17,052,725 $ 4,967,601 $ 126,732,527 $ 1,434,748 1,482,867 696,198 7,751,142 234,809 $ 11.50 $ 7.14 $ 16.35 $ 6.11 $ 12.20 $ 7.57 $ 17.36 $ 6.48 -------------------------------------------------------------------------------------- $ 8,617,404 $ 3,982,677 $ 68,429,651 $ 1,474,803 770,248 582,737 4,381,450 248,114 $ 11.19 $ 6.83 $ 15.62 $ 5.94 -------------------------------------------------------------------------------------- $ 5,189,159 $ 987,501 $ 13,563,252 $ 944,721 472,901 143,826 874,083 157,986 $ 10.97 $ 6.87 $ 15.52 $ 5.98 -------------------------------------------------------------------------------------- $ 569,841 $ 174,259 $ 2,477 $ 295,634 49,871 24,304 147 47,802 $ 11.43 $ 7.17 $ 16.85 $ 6.18 -------------------------------------------------------------------------------------- $ na $ - $ 1,303,695 $ - na - 79,108 - $ na $ - $ 16.48 $ - -------------------------------------------------------------------------------------- $40,620,087 $ 59,027,157 $ 546,124,414 $ 16,028,386 (9,311,633) (48,828,077) (282,705,831) (11,327,326) (503,705) - (182,407) - 624,380 (87,042) (53,204,574) (551,154) -------------------------------------------------------------------------------------- $31,429,129 $ 10,112,038 $ 210,031,602 $ 4,149,906 ====================================================================================== $30,207,560 $ 8,325,263 $ 260,333,316 $ 4,680,734 -------------------------------------------------------------------------------------- 55 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2002 IVY INTERNATIONAL IVY PACIFIC IVY GROWTH VALUE FUND OPPORTUNITIES FUND FUND ASSETS Investments, at value (a) $ 44,622,749 $ 8,127,413 $ 88,070,410 Investments of cash collateral for securities loaned at identified cost and value 2,670,997 - - Cash 684,536 1,364,809 9,848,471 Receivables Investments sold - - 18,945,870 Fund shares sold 7,148 1,071 5,796 Dividends, interest and tax reclaims 215,693 7,555 124,103 Manager for expense reimbursement 2,356 - - Other assets 16,317 12,235 38,042 --------------------------------------------------------- Total assets 48,219,796 9,513,083 117,032,692 --------------------------------------------------------- LIABILITIES Payables Distributions to shareholders - - - Investments purchased 53,347 - - Collateral for securities loaned, at value 2,670,997 - - Fund shares repurchased 65,878 902,479 35,033 Management fee 18,553 3,944 41,434 12b-1 service and distribution fees 16,073 1,923 3,781 Transfer agent fee 12,030 5,985 57,143 Other payables to related parties 4,216 985 7,944 Due to custodian - - - Accrued expenses 54,203 29,070 96,743 --------------------------------------------------------- Total liabilities 2,895,297 944,386 242,078 --------------------------------------------------------- NET ASSETS $ 45,324,499 $ 8,568,697 $116,790,614 ========================================================= CLASS A Net Assets $ 7,853,999 $ 5,317,520 $113,984,697 Outstanding Shares 1,026,858 891,803 13,767,403 Net asset value and redemption price per share $ 7.65 $ 5.96 $ 8.28 Maximum offering price per share* $ 8.12 $ 6.33 $ 8.78 --------------------------------------------------------- CLASS B Net Assets $ 28,123,301 $ 2,678,409 $ 2,510,639 Outstanding Shares 3,842,278 465,920 320,145 Net asset value, offering price and redemption price** per share $ 7.32 $ 5.75 $ 7.84 --------------------------------------------------------- CLASS C Net Assets $ 9,223,440 $ 539,131 $ 157,481 Outstanding Shares 1,259,980 93,819 20,619 Net asset value, offering price and redemption price*** per share $ 7.32 $ 5.75 $ 7.64 --------------------------------------------------------- CLASS ADVISOR Net Assets $ 123,759 $ 33,637 $ 137,797 Outstanding Shares 16,417 5,791 16,678 Net asset value, offering price and redemption price per share $ 7.54 $ 5.81 $ 8.26 --------------------------------------------------------- NET ASSETS CONSIST OF Capital paid-in $ 66,382,807 $ 19,671,575 $191,106,164 Accumulated net realized gain/(loss) on investments and foreign currency transactions (16,306,552) (10,726,338) (76,206,011) Undistributed (accumulated) net investment income (loss) (19,958) (464) - Net unrealized appreciation (depreciation) on investments and foreign currency transactions (4,731,798) (376,076) 1,890,461 --------------------------------------------------------- NET ASSETS $ 45,324,499 $ 8,568,697 $116,790,614 ========================================================= (a) Investments, identified cost $ 49,376,967 $ 8,502,983 $ 86,180,907 --------------------------------------------------------- * On sales of more than $50,000 the offering price is reduced. Maximum sales charge (load) is 5.75% for all Funds except Ivy Bond Fund and Ivy Money Market Fund. Ivy Bond Fund's sales charge is 4.75%; Ivy Money Market Fund does not have a sales charge. ** Subject to a maximum deferred sales charge of 5%. *** Subject to a maximum deferred sales charge of 1%. 56 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF ASSETS AND LIABILITIES (continued) December 31, 2002 IVY US BLUE IVY US EMERGING IVY BOND IVY MONEY CHIP FUND GROWTH FUND FUND MARKET FUND $ 35,461,624 $ 21,556,530 $ 48,347,121 $21,619,877 - - - - - 7,968,028 1,741,275 1,323 289,935 - - - - - - - 58,964 934 1,059,245 - 17,433 - - 16,915 18,696 17,442 24,098 13,265 --------------------------------------------------------------- 35,846,652 29,542,934 51,171,739 21,651,380 --------------------------------------------------------------- - - - 7,736 30,260 1,115,703 - - - - - - 65,046 47,305 35,483 1,100 11,182 10,092 10,515 3,816 6,315 6,487 11,093 - 18,053 22,503 10,141 8,530 2,671 2,368 2,811 1,908 120,406 - - - 38,556 35,069 35,737 26,441 --------------------------------------------------------------- 292,489 1,239,527 105,780 49,531 --------------------------------------------------------------- $ 35,554,163 $ 28,303,407 $ 51,065,959 $21,601,849 =============================================================== $ 24,949,718 $ 16,481,481 $ 31,148,484 $14,684,422 3,410,038 1,312,166 3,728,556 14,684,422 $ 7.32 $ 12.56 $ 8.35 $ 1.00 $ 7.76 $ 13.33 $ 8.77 $ - --------------------------------------------------------------- $ 9,437,836 $ 10,103,899 $ 17,170,631 $ 6,104,362 1,322,723 852,045 2,083,270 6,104,362 $ 7.14 $ 11.86 $ 8.24 $ 1.00 --------------------------------------------------------------- $ 447,908 $ 1,237,746 $ 2,186,109 $ 813,065 62,845 104,413 264,243 813,065 $ 7.13 $ 11.85 $ 8.27 $ 1.00 --------------------------------------------------------------- $ 718,701 $ 480,281 $ 560,735 $ - 96,953 37,773 67,652 - $ 7.41 $ 12.71 $ 8.29 $ - --------------------------------------------------------------- $ 51,491,882 $ 69,487,371 $ 79,113,243 $21,601,849 (16,506,247) (42,579,107) (28,615,045) - - - - - 568,528 1,395,143 567,761 - --------------------------------------------------------------- $ 35,554,163 $ 28,303,407 $ 51,065,959 $21,601,849 =============================================================== $ 34,893,096 $ 20,161,386 $ 47,779,360 $21,619,877 --------------------------------------------------------------- 57 STATEMENTS OF OPERATIONS For the Year Ended December 31, 2002 IVY EUROPEAN IVY CUNDILL GLOBAL IVY DEVELOPING OPPORTUNITIES VALUE FUND MARKETS FUND FUND INVESTMENT INCOME Dividends, net of foreign taxes withheld (a) $ 80,086 $ 93,433 $ 1,855,458 Interest 8,176 1,787 87,006 ------------------------------------------------------- 88,262 95,220 1,942,464 ------------------------------------------------------- EXPENSES Management fee 37,970 53,057 785,647 Transfer agent 9,304 39,217 375,315 Administrative services fee 3,792 5,306 87,624 Custodian fees 25,083 28,666 108,254 Blue Sky fees 37,529 35,372 38,152 Auditing and accounting fees 8,187 16,204 42,458 Shareholder reports 1,080 4,599 48,585 Fund accounting 16,676 17,176 110,283 Trustees' fees 4,883 4,971 14,734 12b-1 service and distribution fees 13,813 32,441 589,326 Legal 30,340 24,532 29,511 Other 2,353 4,923 26,200 ------------------------------------------------------- 191,010 266,464 2,256,089 Expenses reimbursed by Manager (103,157) (130,561) - ------------------------------------------------------- Net expenses 87,853 135,903 2,256,089 ------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 409 (40,683) (313,625) ------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY AND WRITTEN CALL OPTION TRANSACTIONS Net realized gain (loss) (502,286) (100,522) (20,869,819) Net realized gain (loss) on written call options - - - Net change in unrealized appreciation (depreciation) on written call options - - - Net change in unrealized appreciation (depreciation) (297,214) (529,684) 17,645,789 ------------------------------------------------------- Net gain (loss) on investment, foreign currency and written call option transactions (799,500) (630,206) (3,224,030) ------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(799,091) $(670,889) $ (3,537,655) ======================================================= (a) Foreign taxes withheld $ 6,544 $ 9,827 $ 217,458 ------------------------------------------------------- 58 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF OPERATIONS (continued) For the Year Ended December 31, 2002 IVY GLOBAL IVY GLOBAL IVY IVY GLOBAL NATURAL SCIENCE & INTERNATIONAL FUND RESOURCES FUND TECHNOLOGY FUND FUND $ 113,093 $ 365,676 $ 126,088 $ 6,395,759 3,064 19,251 10,357 598,006 ------------------------------------------------------------------ 116,157 384,927 136,445 6,993,765 ------------------------------------------------------------------ 61,356 293,992 167,880 3,178,450 32,709 107,432 170,051 1,052,425 6,136 29,399 16,788 309,037 47,461 35,933 12,751 270,699 33,713 34,726 38,164 39,375 19,445 19,119 17,749 145,522 4,012 12,260 21,670 123,223 17,570 44,775 36,906 211,731 5,076 7,322 6,418 44,481 29,335 158,759 104,123 1,556,179 24,590 25,607 25,109 48,071 5,530 8,428 11,864 78,936 ------------------------------------------------------------------ 286,933 777,752 629,473 7,058,129 (137,953) (45,707) (197,902) - ------------------------------------------------------------------ 148,980 732,045 431,571 7,058,129 ------------------------------------------------------------------ (32,823) (347,118) (295,126) (64,364) ------------------------------------------------------------------ (1,134,688) (1,362,580) (8,505,195) (124,650,724) 4,595 - - 972,561 1,564 - - (84,026) (374,665) 268,841 (3,019,899) 49,772,411 ------------------------------------------------------------------ (1,503,194) (1,093,739) (11,525,094) (73,989,778) ------------------------------------------------------------------ $(1,536,017) $(1,440,857) $(11,820,220) $ (74,054,142) ================================================================== $ 6,077 $ 18,757 $ 700 $ 648,268 ------------------------------------------------------------------ 59 STATEMENTS OF OPERATIONS For the Year Ended December 31, 2002 IVY INTERNATIONAL IVY PACIFIC SMALL IVY INTERNATIONAL OPPORTUNITIES IVY GROWTH COMPANIES FUND VALUE FUND FUND FUND INVESTMENT INCOME Dividends, net of foreign taxes withheld (a) $ 103,608 $ 1,500,654 $ 247,520 $ 1,107,805 Interest 3,133 92,977 5,799 83,008 ---------------------------------------------------------------------- 106,741 1,593,631 253,319 1,190,813 ---------------------------------------------------------------------- EXPENSES Management fee 71,997 595,781 105,358 1,232,314 Transfer agent 42,502 244,778 66,761 627,178 Administrative services fee 7,200 59,578 10,536 144,978 Custodian fees 70,718 76,968 29,138 30,354 Blue Sky fees 38,974 37,297 32,694 35,317 Auditing and accounting fees 15,162 35,399 23,316 70,172 Shareholder reports 5,165 25,898 7,927 76,491 Amortization of organization expenses - 3,240 - - Fund accounting 19,290 86,488 30,611 138,319 Trustees' fees 5,234 11,406 5,615 21,698 12b-1 service and distribution fees 46,068 515,176 57,130 118,837 Legal 24,640 27,193 24,802 32,197 Other 5,581 19,764 7,124 39,470 ---------------------------------------------------------------------- 352,531 1,738,966 401,012 2,567,325 Expenses reimbursed by Manager (166,048) (329,958) (138,434) - ---------------------------------------------------------------------- Net expenses 186,483 1,409,008 262,578 2,567,325 ---------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) (79,742) 184,623 (9,259) (1,376,512) ---------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY AND WRITTEN CALL OPTION TRANSACTIONS Net realized gain (loss) (4,056,208) (6,096,478) 75,568 (29,141,392) Net realized gain (loss) on written call options - 78,077 - - Net change in unrealized appreciation (depreciation) on written call options - 38,366 - (44,156) Net change in unrealized appreciation (depreciation) 2,105,794 (5,965,738) (1,130,497) (20,603,572) ---------------------------------------------------------------------- Net gain (loss) on investment, foreign currency and written call option transactions (1,950,414) (11,945,773) (1,054,929) (49,789,120) ---------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(2,030,156) $(11,761,150) $(1,064,188) $(51,165,632) ====================================================================== (a) Foreign taxes withheld $ 13,174 $ 153,049 $ 18,745 $ 3,071 ---------------------------------------------------------------------- 60 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF OPERATIONS (continued) For the Year Ended December 31, 2002 IVY US IVY US BLUE EMERGING IVY BOND IVY MONEY CHIP FUND GROWTH FUND FUND MARKET FUND $ 746,044 $ 9,633 $ - $ - 11,079 19,621 3,996,416 336,721 ---------------------------------------------------------- 757,123 29,254 3,996,416 336,721 ---------------------------------------------------------- 355,192 397,693 270,234 81,621 232,254 256,383 158,464 100,635 47,359 46,787 54,047 20,405 19,221 17,798 8,366 28,033 38,832 34,326 38,851 27,928 28,936 31,017 33,104 9,908 26,016 32,825 16,606 9,541 - - - - 72,248 68,748 46,704 28,899 10,018 10,016 10,939 6,815 216,110 255,655 282,809 - 27,398 27,396 28,120 26,470 15,972 19,480 15,381 6,814 ---------------------------------------------------------- 1,089,556 1,198,124 963,625 347,069 (238,824) - - (173,624) ---------------------------------------------------------- 850,732 1,198,124 963,625 173,445 ---------------------------------------------------------- (93,609) (1,168,870) 3,032,791 163,276 ---------------------------------------------------------- (8,301,051) (14,815,732) 730,591 - - 256,259 - - - (22,465) - - (4,146,746) (9,059,324) 446,120 - ---------------------------------------------------------- (12,447,797) (23,641,262) 1,176,711 - ---------------------------------------------------------- $(12,541,406) $(24,810,132) $4,209,502 $ 163,276 ========================================================== $ 2,046 $ - $ - $ - ---------------------------------------------------------- 61 STATEMENTS OF CHANGES IN NET ASSETS IVY CUNDILL GLOBAL VALUE FUND IVY DEVELOPING MARKETS FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 INCREASE (DECREASE) IN NET ASSETS Operations Net investment income (loss) $ 409 $ 4,208 $ (40,683) $ (18,659) Net realized gain (loss) on investments, foreign currency and option transactions (502,286) (11,053) (100,522) (839,162) Net change in unrealized appreciation (depreciation) on investments, foreign currency and written call option transactions (297,214) 31,902 (529,684) 413,420 -------------------------------------------------------------- Net increase (decrease) resulting from operations (799,091) 25,057 (670,889) (444,401) -------------------------------------------------------------- Class A distributions Dividends from net investment income - (483) - - Distributions from realized gains (12,598) (5,550) (12,058) - -------------------------------------------------------------- Total distributions to Class A shareholders (12,598) (6,033) (12,058) - -------------------------------------------------------------- Class B distributions Dividends from net investment income - (1,954) - - Distributions from realized gains (17,782) (22,475) (8,904) - -------------------------------------------------------------- Total distributions to Class B shareholders (17,782) (24,429) (8,904) - -------------------------------------------------------------- Class C distributions Dividends from net investment income - - - - Distributions from realized gains (5,319) (850) (2,490) - -------------------------------------------------------------- Total distributions to Class C shareholders (5,319) (850) (2,490) - -------------------------------------------------------------- Class Advisor distributions Dividends from net investment income - (2,320) - - Distributions from realized gains (13,199) (26,675) (254) - -------------------------------------------------------------- Total distributions to Advisor Class shareholders (13,199) (28,995) (254) - -------------------------------------------------------------- Class I distributions Dividends from net investment income (379) - - - Distributions from realized gains - - - - -------------------------------------------------------------- Total distributions to Class I shareholders (379) - - - -------------------------------------------------------------- Fund share transactions (Note 4) Class A 1,296,061 211,494 157,759 (1,737,612) Class B 1,461,220 859,802 (748,738) (1,738,699) Class C 460,178 29,498 (101,441) (480,164) Class Advisor 1,006,438 262,419 (31,028) (31,672) Class I 44,206 - - - -------------------------------------------------------------- Net increase (decrease) resulting from Fund share transactions 4,268,103 1,363,213 (723,448) (3,988,147) -------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 3,419,735 1,327,963 (1,418,043) (4,432,548) Net assets beginning of period 2,074,865 746,902 5,598,457 10,031,005 -------------------------------------------------------------- NET ASSETS END OF PERIOD $5,494,600 $2,074,865 $ 4,180,414 $ 5,598,457 ============================================================== UNDISTRIBUTED NET INVESTMENT INCOME $ - $ 2,077 $ - $ - -------------------------------------------------------------- 62 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS (continued) IVY EUROPEAN IVY GLOBAL NATURAL OPPORTUNITIES FUND IVY GLOBAL FUND RESOURCES FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2002 2001 $ (313,625) $ (1,108,594) $ (32,823) $ (87,678) $ (347,118) $ 17,480 (20,869,819) (32,949,388) (1,130,093) (1,707,991) (1,362,580) (129,942) 17,645,789 (2,857,973) (373,101) (357,083) 268,841 939,703 ---------------------------------------------------------------------------------------------------- (3,537,655) (36,915,955) (1,536,017) (2,152,752) (1,440,857) 827,241 ---------------------------------------------------------------------------------------------------- - - - - - (123,220) - (79,656) - - (97,855) - ---------------------------------------------------------------------------------------------------- - (79,656) - - (97,855) (123,220) ---------------------------------------------------------------------------------------------------- - - - - - (72,803) - (89,127) - - - - ---------------------------------------------------------------------------------------------------- - (89,127) - - - (72,803) ---------------------------------------------------------------------------------------------------- - - - - - (25,855) - (65,137) - - (3,161) - ---------------------------------------------------------------------------------------------------- - (65,137) - - (3,161) (25,855) ---------------------------------------------------------------------------------------------------- - - - - - (10,125) - (22,555) - - (4,055) - ---------------------------------------------------------------------------------------------------- - (22,555) - - (4,055) (10,125) ---------------------------------------------------------------------------------------------------- - - - - - - - (33) - - - - ---------------------------------------------------------------------------------------------------- - (33) - - - - ---------------------------------------------------------------------------------------------------- (9,398,115) (12,356,980) (1,184,488) (1,292,078) 10,315,109 1,944,691 (7,902,090) (11,307,942) (821,826) (1,559,669) 3,579,421 1,647,979 (4,696,091) (14,959,642) (52,999) 2,801 3,896,774 1,087,331 (2,988,959) (6,208,579) (6,502) (30,156) 5,039 461,155 30,709 33 - - - - ---------------------------------------------------------------------------------------------------- (24,954,546) (44,833,110) (2,065,815) (2,879,102) 17,796,343 5,141,156 ---------------------------------------------------------------------------------------------------- (28,492,201) (82,005,573) (3,601,832) (5,031,854) 16,250,415 5,736,394 98,653,878 180,659,451 8,204,575 13,236,429 15,178,714 9,442,320 ---------------------------------------------------------------------------------------------------- $ 70,161,677 $ 98,653,878 $ 4,602,743 $ 8,204,575 $31,429,129 $15,178,714 ==================================================================================================== $ - $ - $ - $ - $ - $ - ---------------------------------------------------------------------------------------------------- 63 STATEMENTS OF CHANGES IN NET ASSETS IVY GLOBAL SCIENCE IVY INTERNATIONAL & TECHNOLOGY FUND FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 INCREASE (DECREASE) IN NET ASSETS Operations Net investment income (loss) $ (295,126) $ (850,970) $ (64,364) $ (803,812) Net realized gain (loss) on investments, foreign currency and option transactions (8,505,195) (34,588,967) (123,678,163) (117,343,526) Net change in unrealized appreciation (depreciation) on investments, foreign currency and written call option transactions (3,019,899) (736,843) 49,688,385 (65,204,565) ----------------------------------------------------------------- Net increase (decrease) resulting from operations (11,820,220) (36,176,780) (74,054,142) (183,351,903) ----------------------------------------------------------------- Class A distributions Dividends from net investment income - - - - Distributions from realized gains - - (22,133) - ----------------------------------------------------------------- Total distributions to Class A shareholders - - (22,133) - ----------------------------------------------------------------- Class B distributions Dividends from net investment income - - - - Distributions from realized gains - - (12,413) - ----------------------------------------------------------------- Total distributions to Class B shareholders - - (12,413) - ----------------------------------------------------------------- Class C distributions Dividends from net investment income - - - - Distributions from realized gains - - (2,440) - ----------------------------------------------------------------- Total distributions to Class C shareholders - - (2,440) - ----------------------------------------------------------------- Class Advisor distributions Dividends from net investment income - - - - Distributions from realized gains - - - - ----------------------------------------------------------------- Total distributions to Advisor Class shareholders - - - - ----------------------------------------------------------------- Class I distributions Dividends from net investment income - - - - Distributions from realized gains - - (343) - ----------------------------------------------------------------- Total distributions to Class I shareholders - - (343) - ----------------------------------------------------------------- Fund share transactions (Note 4) Class A (2,822,473) (2,017,011) (174,708,492) (130,688,855) Class B (2,960,646) (2,241,470) (44,486,381) (90,315,247) Class C (731,553) (2,535,725) (8,318,805) (20,256,233) Class Advisor (36,495) (38,620) (2,162) 1,566 Class I - - (13,329,840) (10,732,630) ----------------------------------------------------------------- Net increase (decrease) resulting from Fund share transactions (6,551,167) (6,832,826) (240,845,680) (251,991,399) ----------------------------------------------------------------- TOTAL (DECREASE) INCREASE IN NET ASSETS (18,371,387) (43,009,606) (314,937,151) (435,343,302) Net assets beginning of period 28,483,425 71,493,031 524,968,753 960,312,055 ----------------------------------------------------------------- NET ASSETS END OF PERIOD $ 10,112,038 $ 28,483,425 $ 210,031,602 $ 524,968,753 ================================================================= UNDISTRIBUTED NET INVESTMENT INCOME $ - $ - $ - $ - ----------------------------------------------------------------- 64 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS (continued) IVY INTERNATIONAL SMALL COMPANIES FUND IVY INTERNATIONAL VALUE FUND IVY PACIFIC OPPORTUNITIES FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2002 2001 $ (79,742) $ (244,285) $ 184,623 $ (10,164) $ (9,259) $ (108,619) (4,056,208) (6,817,197) (6,018,401) (5,500,755) 75,568 (2,117,974) 2,105,794 (1,290,455) (5,927,372) (15,899,870) (1,130,497) 755,091 ---------------------------------------------------------------------------------------------------- (2,030,156) (8,351,937) (11,761,150) (21,410,789) (1,064,188) (1,471,502) ---------------------------------------------------------------------------------------------------- - - - (27,423) - (8,050) - (3,531) - - - (1,649) ---------------------------------------------------------------------------------------------------- - (3,531) - (27,423) - (9,699) ---------------------------------------------------------------------------------------------------- - - - (97,290) - (5,214) - (3,188) - - - (1,068) ---------------------------------------------------------------------------------------------------- - (3,188) - (97,290) - (6,282) ---------------------------------------------------------------------------------------------------- - - - (34,090) - (1,203) - (2,267) - - - (246) ---------------------------------------------------------------------------------------------------- - (2,267) - (34,090) - (1,449) ---------------------------------------------------------------------------------------------------- - - - (773) - (4) - (942) - - - (1) ---------------------------------------------------------------------------------------------------- - (942) - (773) - (5) ---------------------------------------------------------------------------------------------------- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------- - - - - - - ---------------------------------------------------------------------------------------------------- (1,356,976) (2,382,665) (3,478,391) (6,604,271) (214,260) (2,223,328) (1,094,512) (69,144) (10,675,076) (16,393,092) (997,562) (1,762,254) (891,987) (541,670) (4,469,914) (8,894,349) (333,108) (461,062) (539,730) (1,796,577) (212,063) (184,624) 625 (26,101) - - - - - - ---------------------------------------------------------------------------------------------------- (3,883,205) (4,790,056) (18,835,444) (32,076,336) (1,544,305) (4,472,745) ---------------------------------------------------------------------------------------------------- (5,913,361) (13,151,918) (30,596,594) (53,646,701) (2,608,493) (5,961,682) 10,063,267 23,215,185 75,921,093 129,567,794 11,177,190 17,138,872 ---------------------------------------------------------------------------------------------------- $ 4,149,906 $ 10,063,267 $ 45,324,499 $ 75,921,093 $ 8,568,697 $11,177,190 ==================================================================================================== $ - $ - $ - $ - $ - $ - ---------------------------------------------------------------------------------------------------- 65 STATEMENTS OF CHANGES IN NET ASSETS IVY GROWTH FUND IVY US BLUE CHIP FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 INCREASE (DECREASE) IN NET ASSETS Operations Net investment income (loss) $ (1,376,512) $ (1,271,936) $ (93,609) $ (273,384) Net realized gain (loss) on investments, foreign currency and option transactions (29,141,392) (46,425,575) (8,301,051) (7,653,606) Net change in unrealized appreciation (depreciation) on investments, foreign currency and written call option transactions (20,647,728) (10,892,142) (4,146,746) (1,306,669) --------------------------------------------------------------- Net increase (decrease) resulting from operations (51,165,632) (58,589,653) (12,541,406) (9,233,659) --------------------------------------------------------------- Class A distributions Dividends from net investment income - - - - Distributions from realized gains - (150,031) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Class A shareholders - (150,031) - - --------------------------------------------------------------- Class B distributions Dividends from net investment income - - - - Distributions from realized gains - (4,963) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Class B shareholders - (4,963) - - --------------------------------------------------------------- Class C distributions Dividends from net investment income - - - - Distributions from realized gains - (306) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Class C shareholders - (306) - - --------------------------------------------------------------- Class Advisor distributions Dividends from net investment income - - - - Distributions from realized gains - (246) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Advisor Class shareholders - (246) - - --------------------------------------------------------------- Fund share transactions (Note 4) Class A (17,230,199) (24,244,560) (5,583,778) (13,083,890) Class B (1,832,126) 39,091 (6,026,613) (1,937,914) Class C (117,794) (219,317) (467,317) (1,480,938) Class Advisor (78,349) 21,369 113,195 (127,958) Class I - - - - --------------------------------------------------------------- Net increase (decrease) resulting from Fund share transactions (19,258,468) (24,403,417) (11,964,513) (16,630,700) --------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (70,424,100) (83,148,616) (24,505,919) (25,864,359) Net assets beginning of period 187,214,714 270,363,330 60,060,082 85,924,441 --------------------------------------------------------------- NET ASSETS END OF PERIOD $116,790,614 $187,214,714 $ 35,554,163 $ 60,060,082 =============================================================== UNDISTRIBUTED NET INVESTMENT INCOME $ - $ - $ - $ - --------------------------------------------------------------- 66 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS (continued) IVY US EMERGING GROWTH FUND IVY BOND FUND IVY MONEY MARKET FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2002 2001 $ (1,168,870) $ (1,761,414) $ 3,032,791 $ 3,819,656 $ 163,276 $ 728,899 (14,559,473) (25,941,075) 730,591 (1,814,351) - - (9,081,789) (18,236,680) 446,120 3,250,094 - - ---------------------------------------------------------------------------------------------------- (24,810,132) (45,939,169) 4,209,502 5,255,399 163,276 728,899 ---------------------------------------------------------------------------------------------------- - - (1,995,695) (2,485,231) (104,700) (513,765) - - - - - - - - - (75,056) - - ---------------------------------------------------------------------------------------------------- - - (1,995,695) (2,560,287) (104,700) (513,765) ---------------------------------------------------------------------------------------------------- - - (909,043) (968,691) (53,398) (188,742) - - - - - - - - - (29,256) - - ---------------------------------------------------------------------------------------------------- - - (909,043) (997,947) (53,398) (188,742) ---------------------------------------------------------------------------------------------------- - - (105,075) (130,441) (5,178) (26,392) - - - - - - - - - (3,939) - - ---------------------------------------------------------------------------------------------------- - - (105,075) (134,380) (5,178) (26,392) ---------------------------------------------------------------------------------------------------- - - (22,896) (10,247) - - - - - - - - - - - (309) - - ---------------------------------------------------------------------------------------------------- - - (22,896) (10,556) - - ---------------------------------------------------------------------------------------------------- (13,056,371) (9,332,403) (5,990,673) (16,994,627) 1,780,289 (7,489,724) (8,023,668) (12,090,864) (2,507,083) (1,183,399) (575,556) 808,338 (1,477,554) (2,343,242) (48,003) (585,610) 293,770 (1,456,010) (146,978) (386,693) 371,156 (26,727) - - - - - - - - ---------------------------------------------------------------------------------------------------- (22,704,571) (24,153,202) (8,174,603) (18,790,363) 1,498,503 (8,137,396) ---------------------------------------------------------------------------------------------------- (47,514,703) (70,092,371) (6,997,810) (17,238,134) 1,498,503 (8,137,396) 75,818,110 145,910,481 58,063,769 75,301,903 20,103,346 28,240,742 ---------------------------------------------------------------------------------------------------- $ 28,303,407 $ 75,818,110 $ 51,065,959 $ 58,063,769 $21,601,849 $20,103,346 ==================================================================================================== $ - $ - $ - $ - $ - $ - ---------------------------------------------------------------------------------------------------- 67 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY CUNDILL GLOBAL VALUE FUND A 01/01 to 12/31/2002 $ 9.64 09/04(e) to 12/31/2001 10.15 B 01/01 to 12/31/2002 9.61 09/26(e) to 12/31/2001 9.26 C 01/01 to 12/31/2002 9.57 10/19(e) to 12/31/2001 9.44 I 11/05(e) to 12/31/2002 8.85 ADVISOR 01/01 to 12/31/2002 9.55 01/01 to 12/31/2001 10.07 04/19(e) to 12/31/2000 10.00 ------------------------------------------------- IVY DEVELOPING MARKETS FUND A 01/01 to 12/31/2002 6.36 01/01 to 12/31/2001 6.66 01/01 to 12/31/2000 8.77 01/01 to 12/31/1999 6.02 01/01 to 12/31/1998 6.82 B 01/01 to 12/31/2002 6.10 01/01 to 12/31/2001 6.49 01/01 to 12/31/2000 8.63 01/01 to 12/31/1999 5.93 01/01 to 12/31/1998 6.77 C 01/01 to 12/31/2002 6.13 01/01 to 12/31/2001 6.52 01/01 to 12/31/2000 8.67 01/01 to 12/31/1999 5.96 01/01 to 12/31/1998 6.79 ADVISOR 01/01 to 12/31/2002 6.36 01/01 to 12/31/2001 6.70 01/01 to 12/31/2000 8.80 01/01 to 12/31/1999 6.05 04/30(e) to 12/31/1998 7.48 ------------------------------------------------- IVY EUROPEAN OPPORTUNITIES FUND A 01/01 to 12/31/2002 13.65 01/01 to 12/31/2001 17.25 01/01 to 12/31/2000 17.13 05/04(e) to 12/31/1999 10.01 B 01/01 to 12/31/2002 13.54 01/01 to 12/31/2001 17.26 01/01 to 12/31/2000 17.13 05/24(e) to 12/31/1999 10.21 C 01/01 to 12/31/2002 13.59 01/01 to 12/31/2001 17.32 01/01 to 12/31/2000 17.13 10/24(e) to 12/31/1999 11.57 I 01/01 to 12/31/2002 13.78 01/01 to 12/31/2001 17.37 03/16(e) to 12/31/2000 26.00 ADVISOR 01/01 to 12/31/2002 13.80 01/01 to 12/31/2001 17.39 01/01 to 12/31/2000 17.23 05/03(e) to 12/31/1999 10.01 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. na -- not applicable (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Developing Markets and European Opportunities excluding redemption fees would have been (12.28%) and (3.44%) for the year ended 12/31/02 and (5.41%) and (20.78%) for the year ended 12/31/01, respectively. 68 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .00 (c)(d) $(1.17) $(1.17) $- $ .08 $ .08 .01 (c) (.23) (.22) .02 .27 .29 (.05)(c)(d) (1.16) (1.21) - .08 .08 .01 (c) .62 .63 .02 .26 .28 (.07)(c)(d) (1.16) (1.23) - .08 .08 .01 (c) .40 .41 .02 .26 .28 .26 (.72) (.46) - .08 .08 .04 (c)(d) (1.17) (1.13) - .08 .08 .03 (c) (.25) (.22) .02 .28 .30 .05 (c) .41 .46 .19 .20 .39 --------------------------------------------------------------------------------------------------- (.02)(c)(d) (.76) (.78) - .03 .03 .01 (c) (.31)(h) (.30) - - - (.02)(c) (2.07) (2.09) - .02 .02 .01 (c) 2.80 2.81 .01 .05 .06 .06 (c)(d) (.86) (.80) - - - (.07)(c)(d) (.72) (.79) - .03 .03 (.05)(c) (.34) (.39) - - - (.10)(c) (2.02) (2.12) - .02 .02 (.04)(c) 2.76 2.72 - .02 .02 .01 (c)(d) (.85) (.84) - - - (.07)(c)(d) (.73) (.80) - .03 .03 (.05)(c) (.34) (.39) - - - (.14)(c) (1.99) (2.13) - .02 .02 (.03)(c) 2.76 2.73 - .02 .02 .01 (c)(d) (.84) (.83) - - - (0.01)(c)(d) (.75) (.76) - .03 .03 .04 (c) (.38) (.34) - - - .02 (c) (2.10) (2.08) - .02 .02 .03 (c) 2.83 2.86 .06 .05 .11 .04 (c)(d) (1.47) (1.43) - - - --------------------------------------------------------------------------------------------------- .01 (c)(d) (.46)(h) (.45) - - - (.08)(c) (3.49)(h) (3.57) - .03 .03 (.07) .82 .75 - .63 .63 - (c) 16.35 16.35 .01 9.22 9.23 (.10)(c)(d) (.51) (.61) - - - (.20)(c) (3.49) (3.69) - .03 .03 (.18) .83 .65 - .52 .52 (.01)(c) 16.15 16.14 - 9.22 9.22 (.10)(c)(d) (.51) (.61) - - - (.22)(c) (3.48) (3.70) - .03 .03 (.22) .88 .66 - .47 .47 (.01)(c) 6.00 5.99 .01 .42 .43 .07 (c)(d) (.53) (.46) - - - (.01)(c) (3.55) (3.56) - .03 .03 (.01) (7.92) (7.93) - .70 .70 .06 (c)(d) (.52) (.46) - - - (.02)(c) (3.54) (3.56) - .03 .03 (.02) .85 .83 - .67 .67 - (c) 16.46 16.46 .02 9.22 9.24 69 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY CUNDILL GLOBAL VALUE FUND A $ 8.39 (12.17) 9.64 (2.07) B 8.32 (12.62) 9.61 6.91 C 8.26 (12.88) 9.57 4.44 I 8.31 (5.23) ADVISOR 8.34 (11.86) 9.55 (2.13) 10.07 4.66 ------------------------------------- IVY DEVELOPING MARKETS FUND A 5.55 (12.28) 6.36 (4.50)(h) 6.66 (23.79) 8.77 46.70 6.02 (11.67) B 5.28 (12.96) 6.10 (6.01) 6.49 (24.53) 8.63 45.82 5.93 (12.35) C 5.30 (13.06) 6.13 (5.98) 6.52 (24.53) 8.67 45.84 5.96 (12.16) ADVISOR 5.57 (11.96) 6.36 (5.07) 6.70 (23.60) 8.80 47.38 6.05 (19.06) ------------------------------------- IVY EUROPEAN OPPORTUNITIES FUND A 13.20 (3.30)(h) 13.65 (20.67)(h) 17.25 4.51 17.13 215.58 B 12.93 (4.51) 13.54 (21.35) 17.26 4.12 17.13 209.41 C 12.98 (4.49) 13.59 (21.32) 17.32 3.98 17.13 51.80 I 13.32 (3.34) 13.78 (20.46) 17.37 (30.40) ADVISOR 13.34 (3.33) 13.80 (20.44) 17.39 5.01 17.23 217.16 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. na -- not applicable (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Developing Markets and European Opportunities excluding redemption fees would have been (12.28%) and (3.44%) for the year ended 12/31/02 and (5.41%) and (20.78%) for the year ended 12/31/01, respectively. 70 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 1,403 2.28 4.97 .02 (c) 122 213 4.47(g) 31.77(g) .94 (c)(g) 57 2,089 2.84 5.53 (.54)(c) 122 867 6.04(g) 39.53(g) .60 (c)(g) 57 446 3.10 5.79 (.80)(c) 122 30 7.71(g) 51.61(g) .99 (c)(g) 57 42 11.51(g) 28.44(g) 2.96 (c)(g) 122 1,515 1.83 4.52 .47 (c) 122 964 1.40 10.30 .37 (c) 57 747 1.95(g) 19.15(g) .70 (c)(g) 53 ------------------------------------------------------------------------------------------- 2,210 2.18 4.64 (.39)(c) 48 2,390 2.19 4.35 .17 (c) 14 4,213 2.12 3.50 (.27)(c) 76 5,652 2.30 3.28 .13 (c) 37 5,487 2.18 3.47 .88 (c) 47 1,490 2.98 5.44 (1.18)(c) 48 2,506 2.96 5.12 (.59)(c) 14 4,525 2.90 4.28 (1.04)(c) 76 7,676 2.92 3.90 (.49)(c) 37 6,145 2.96 4.25 .10 (c) 47 433 2.95 5.41 (1.16)(c) 48 619 3.01 5.17 (.65)(c) 14 1,173 2.85 4.23 (1.00)(c) 76 3,474 2.85 3.83 (.43)(c) 37 2,641 2.96 4.25 .10 (c) 47 47 1.88 4.34 (.09)(c) 48 83 1.84 4.00 .52 (c) 14 120 1.71 3.09 .14 (c) 76 337 1.74 2.72 .69 (c) 37 82 1.68(g) 2.97(g) 1.38 (c)(g) 47 ------------------------------------------------------------------------------------------- 20,452 2.15 2.15 .06 (c) 69 30,833 2.15 2.17 (.44)(c) 66 54,655 na 1.83 (.36) 46 13,932 2.22(g) 6.10(g) (.15)(c)(g) 108 24,627 2.92 2.92 (.70)(c) 69 33,705 2.89 2.91 (1.18)(c) 66 57,283 na 2.59 (1.12) 46 5,900 2.96(g) 6.84(g) (.89)(c)(g) 108 19,324 2.92 2.92 (.70)(c) 69 24,918 2.91 2.93 (1.20)(c) 66 49,527 na 2.58 (1.11) 46 8,076 2.96(g) 6.84(g) (.89)(c)(g) 108 30 1.65 1.65 .56 (c) 69 13 1.80 1.82 (.08)(c) 66 17 na 1.54(g) (.07)(g) 46 5,729 1.81 1.81 .40 (c) 69 9,186 1.72 1.74 (.00)(c) 66 19,178 na 1.55 (.09) 46 5,246 1.93(g) 5.81(g) .14 (c)(g) 108 71 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY GLOBAL FUND A 01/01 to 12/31/2002 $ 8.71 01/01 to 12/31/2001 10.63 01/01 to 12/31/2000 13.42 01/01 to 12/31/1999 11.32 01/01 to 12/31/1998 10.93 B 01/01 to 12/31/2002 8.36 01/01 to 12/31/2001 10.30 01/01 to 12/31/2000 13.14 01/01 to 12/31/1999 11.19 01/01 to 12/31/1998 10.90 C 01/01 to 12/31/2002 8.05 01/01 to 12/31/2001 9.93 01/01 to 12/31/2000 12.75 01/01 to 12/31/1999 10.90 01/01 to 12/31/1998 10.67 ADVISOR 01/01 to 12/31/2002 8.80 01/01 to 12/31/2001 10.73 01/01 to 12/31/2000 13.50 01/01 to 12/31/1999 11.36 04/30(e) to 12/31/1998 13.26 ------------------------------------------------- IVY GLOBAL NATURAL RESOURCES FUND A 01/01 to 12/31/2002 11.05 01/01 to 12/31/2001 9.74 01/01 to 12/31/2000 8.91 01/01 to 12/31/1999 6.32 01/01 to 12/31/1998 9.01 B 01/01 to 12/31/2002 10.81 01/01 to 12/31/2001 9.56 01/01 to 12/31/2000 8.77 01/01 to 12/31/1999 6.27 01/01 to 12/31/1998 9.00 C 01/01 to 12/31/2002 10.61 01/01 to 12/31/2001 9.40 01/01 to 12/31/2000 8.63 01/01 to 12/31/1999 6.21 01/01 to 12/31/1998 9.00 ADVISOR 01/01 to 12/31/2002 11.02 01/01 to 12/31/2001 9.74 01/01 to 12/31/2000 8.90 04/08(e) to 12/31/1999 7.00 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Global and Global Natural Resources excluding redemption fees would have been (21.28%) and 4.40% for the year ended 12/31/02. 72 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $(.02)(c)(d) $(1.76)(h) $(1.78) $- $ - $ - (.06)(c) (1.86) (1.92) - - - 02 (c) (1.91) (1.89) - .90 .90 .01 (c) 2.98 2.99 - .89 .89 .02 (c) .91 .93 - .54 .54 (.09)(c)(d) (1.77) (1.86) - - - (.17)(c) (1.77) (1.94) - - - (.09)(c) (1.85) (1.94) - .90 .90 (.10)(c) 2.94 2.84 - .89 .89 (.09)(c) .92 .83 - .54 .54 (.09)(c)(d) (1.74) (1.83) - - - (.13)(c) (1.75) (1.88) - - - (.11)(c) (1.81) (1.92) - .90 .90 (.16)(c) 2.90 2.74 - .89 .89 (.16)(c) .93 .77 - .54 .54 - (c)(d) (1.88) (1.88) - - - (.05)(c) (1.88) (1.93) - - - 05 (c) (1.92) (1.87) - .90 .90 .08 (c) 2.95 3.03 - .89 .89 .05 (c) (1.41) (1.36) - .54 .54 --------------------------------------------------------------------------------------------------- (.11)(c)(d) .63 (h) .52 - .07 .07 .04 (c)(d) 1.45 1.49 .18 - .18 (.07)(c) .95 .88 .05 - .05 - (c)(d) 2.59 2.59 - - - .03 (c) (2.68) (2.65) .04 - .04 (.19)(c)(d) .57 .38 - - - (.02)(c)(d) 1.42 1.40 .15 - .15 (.09)(c) .90 .81 .02 - .02 (.04)(c)(d) 2.54 2.50 - - - (.04)(c) (2.65) (2.69) .04 - .04 (.18)(c)(d) .55 .37 - .01 .01 (.02)(c)(d) 1.39 1.37 .16 - .16 (.07)(c) .89 .82 .05 - .05 (.04)(c)(d) 2.46 2.42 - - - (.14)(c) (2.61) (2.75) .04 - .04 (.07)(c) .56 .49 - .08 .08 .09 (c)(d) 1.43 1.52 .24 - .24 (.05)(c) .95 .90 .06 - .06 .02 (c)(d) 1.88 1.90 - - - 73 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY GLOBAL FUND A $ 6.93 (20.44)(h) 8.71 (18.06) 10.63 (13.91) 13.42 26.51 11.32 8.59 B 6.50 (22.25) 8.36 (18.83) 10.30 (14.58) 13.14 25.31 11.19 7.69 C 6.22 (22.73) 8.05 (18.93) 9.93 (14.88) 12.75 25.24 10.90 7.30 ADVISOR 6.92 (21.36) 8.80 (17.99) 10.73 (13.67) 13.50 26.77 11.36 (10.19) ----------------------------------- IVY GLOBAL NATURAL RESOURCES FUND A 11.50 4.66(h) 11.05 15.40 9.74 9.86 8.91 40.98 6.32 (29.35) B 11.19 3.52 10.81 14.73 9.56 9.27 8.77 39.87 6.27 (29.82) C 10.97 3.46 10.61 14.62 9.40 9.49 8.63 38.97 6.21 (30.49) ADVISOR 11.43 4.46 11.02 15.71 9.74 10.17 8.90 27.14 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Global and Global Natural Resources excluding redemption fees would have been (21.28%) and 4.40% for the year ended 12/31/02. 74 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 3,339 2.13 4.38 (.23)(c) 61 5,542 2.14 4.21 (.58)(c) 72 8,135 2.17 3.11 .16 (c) 102 11,828 2.17 2.77 .09 (c) 50 14,660 2.18 2.54 .16 (c) 17 1,124 3.12 5.37 (1.23)(c) 61 2,421 3.05 5.12 (1.49)(c) 72 4,769 2.99 3.93 (.66)(c) 102 7,316 2.99 3.59 (.72)(c) 50 7,495 2.97 3.33 (.63)(c) 17 72 3.19 5.44 (1.30)(c) 61 148 3.20 5.27 (1.64)(c) 72 178 3.36 4.30 (1.03)(c) 102 267 3.23 3.83 (.96)(c) 50 428 3.30 3.66 (.96)(c) 17 68 1.95 4.20 (.06)(c) 61 94 2.02 4.09 (.45)(c) 72 155 1.95 2.89 .38 (c) 102 179 1.96 2.56 .31 (c) 50 321 1.75(g) 2.11(g) .59 (c)(g) 17 ------------------------------------------------------------------------------------------- 17,053 2.22 2.38 (.91)(c) 67 7,695 2.25 3.71 .38 (c) 169 5,549 2.29 4.54 (.69)(c) 134 5,823 2.16 4.53 .02 (c) 157 1,345 2.22 5.75 .29 (c) 98 8,617 2.93 3.09 (1.62)(c) 67 5,231 2.87 4.33 (.24)(c) 169 3,157 2.80 5.05 (1.20)(c) 134 2,520 2.71 5.08 (.53)(c) 157 1,320 2.90 6.43 (.39)(c) 98 5,189 2.94 3.10 (1.64)(c) 67 1,788 2.86 4.32 (.23)(c) 169 715 2.70 4.95 (1.10)(c) 134 472 2.73 5.10 (.55)(c) 157 41 3.57 7.10 (1.06)(c) 98 570 1.82 1.98 (.51)(c) 67 465 1.78 3.24 .85 (c) 169 22 2.02 4.27 (.42)(c) 134 26 1.87(g) 4.24(g) .31 (c)(g) 157 75 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY GLOBAL SCIENCE & TECHNOLOGY FUND A 01/02 to 12/31/2002 $13.31 01/01 to 12/31/2001 27.53 01/01 to 12/31/2000 48.90 01/01 to 12/31/1999 23.63 01/01 to 12/31/1998 17.47 B 01/02 to 12/31/2002 12.86 01/01 to 12/31/2001 26.80 01/01 to 12/31/2000 47.97 01/01 to 12/31/1999 23.31 01/01 to 12/31/1998 17.37 C 01/02 to 12/31/2002 12.91 01/01 to 12/31/2001 26.93 01/01 to 12/31/2000 48.19 01/01 to 12/31/1999 23.38 01/01 to 12/31/1998 17.40 ADVISOR 01/02 to 12/31/2002 13.34 01/01 to 12/31/2001 27.54 01/01 to 12/31/2000 48.82 01/01 to 12/31/1999 23.62 04/15(e) to 12/31/1998 20.19 ------------------------------------------------- IVY INTERNATIONAL FUND A 01/02 to 12/31/2002 20.69 01/01 to 12/31/2001 26.20 01/01 to 12/31/2000 47.09 01/01 to 12/31/1999 41.20 01/01 to 12/31/1998 39.03 B 01/02 to 12/31/2002 20.03 01/01 to 12/31/2001 25.64 01/01 to 12/31/2000 46.78 01/01 to 12/31/1999 40.97 01/01 to 12/31/1998 38.82 C 01/02 to 12/31/2002 19.90 01/01 to 12/31/2001 25.46 01/01 to 12/31/2000 46.57 01/01 to 12/31/1999 40.79 01/01 to 12/31/1998 38.64 I 01/02 to 12/31/2002 20.85 01/01 to 12/31/2001 26.35 01/01 to 12/31/2000 47.09 01/01 to 12/31/1999 41.21 01/01 to 12/31/1998 39.06 ADVISOR 01/01 to 12/31/2002(i) 20.67 01/01 to 12/31/2001 26.25 08/31(e) to 12/31/2000 40.05 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. na -- not applicable (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return would have been (21.10%) as of 12/31/02 and (21.15%) as of 12/31/01. (i) Advisor Class shares were outstanding for the period from 01/01/02 through 06/11/02 and from 07/03/02 through 12/31/02. 76 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $(.13)(c)(d) $ (6.04) $ (6.17) $ - $ - $ - (.31)(c) (13.91) (14.22) - - - (.64) (20.38) (21.02) - .35 .35 (.43) 29.27 28.84 - 3.57 3.57 (.36)(d) 6.52 6.16 - - - (.20)(c)(d) (5.83) (6.03) - - - (.45)(c) (13.49) (13.94) - - - (.93) (19.89) (20.82) - .35 .35 (.62) 28.67 28.05 - 3.39 3.39 (.50)(d) 6.44 5.94 - - - (.20)(c)(d) (5.84) (6.04) - - - (.53)(c) (13.49) (14.02) - - - (1.10) (19.81) (20.91) - .35 .35 (.70) 28.87 28.17 - 3.36 3.36 (.48)(d) 6.46 5.98 - - - (.10)(c)(d) (6.07) (6.17) - - - (.27)(c) (13.93) (14.20) - - - (.43) (20.50) (20.93) - .35 .35 (.24) 29.07 28.83 - 3.63 3.63 (.20)(d) 3.63 3.43 - - - --------------------------------------------------------------------------------------------------- .06 (c)(d) (4.40)(h) (4.34) - - - .05 (c) (5.56)(h) (5.51) - - - .19 (12.44) (12.25) .04 8.60 8.64 .30 8.31 8.61 .24 2.48 2.72 .37 2.50 2.87 .35 .35 .70 (.12)(c)(d) (4.29) (4.41) - - - (.21)(c) (5.40) (5.61) - - - (.17) (12.33) (12.50) .04 8.60 8.64 (.06) 8.27 8.21 - 2.40 2.40 - 2.50 2.50 - .35 .35 (.11)(c)(d) (4.27) (4.38) - - - (.21)(c) (5.35) (5.56) - - - (.19) (12.28) (12.47) .04 8.60 8.64 (.05) 8.23 8.18 - 2.40 2.40 - 2.50 2.50 - .35 .35 .14 (c)(d) (4.51) (4.37) - - - .15 (c) (5.65) (5.50) - - - .64 (12.74) (12.10) .04 8.60 8.64 .52 8.34 8.86 .42 2.56 2.98 .55 2.48 3.03 .53 .35 .88 (.24) (3.58) (3.82) - - - .01 (c) (5.59) (5.58) - - - .02 (5.18) (5.16) .04 8.60 8.64 77 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY GLOBAL SCIENCE & TECHNOLOGY FUND A $ 7.14 (46.36) 13.31 (51.65) 27.53 (42.99) 48.90 122.56 23.63 35.26 B 6.83 (46.89) 12.86 (52.01) 26.80 (43.41) 47.97 120.82 23.31 34.20 C 6.87 (46.79) 12.91 (52.06) 26.93 (43.40) 48.19 120.98 23.38 34.37 ADVISOR 7.17 (46.25) 13.34 (51.56) 27.54 (42.88) 48.82 122.56 23.62 16.99 -------------------------------- IVY INTERNATIONAL FUND A 16.35 (20.96)(h) 20.69 (21.03)(h) 26.20 (17.26) 47.09 21.05 41.20 7.34 B 15.62 (22.00) 20.03 (21.88) 25.64 (17.95) 46.78 20.15 40.97 6.43 C 15.52 (22.00) 19.90 (21.84) 25.46 (17.97) 46.57 20.16 40.79 6.46 I 16.48 (20.95) 20.85 (20.87) 26.35 (16.92) 47.09 21.66 41.21 7.75 ADVISOR 16.85 (18.71) 20.67 (21.26) 26.25 (12.09) (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (21.10%) for the year ended 12/31/02 and (21.15%) for the year ended 12/31/01. 78 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 4,968 2.19 3.37 (1.37)(c) 153 13,472 2.20 2.46 (1.65)(c) 135 32,016 na 1.82 (1.53) 69 41,516 na 1.98 (1.80) 62 17,888 na 2.16 (1.88) 73 3,983 2.97 4.15 (2.15)(c) 153 11,731 2.96 3.22 (2.41)(c) 135 28,675 na 2.55 (2.26) 69 35,879 na 2.74 (2.55) 62 10,197 na 2.95 (2.67) 73 987 3.02 4.20 (2.20)(c) 153 2,918 2.98 3.24 (2.43)(c) 135 9,977 na 2.53 (2.23) 69 18,769 na 2.68 (2.49) 62 8,431 na 2.84 (2.56) 73 174 1.95 3.13 (1.13)(c) 153 361 2.01 2.27 (1.46)(c) 135 826 na 1.64 (1.34) 69 431 na 1.89 (1.71) 62 15 na 2.18(g) (1.91)(g) 73 ------------------------------------------------------------------------------------------- 126,733 1.89 1.89 .32 34 344,641 1.60 1.66 .18 (c) 43 588,282 na 1.66 .37 91 1,573,615 na 1.66 .63 7 1,613,797 na 1.58 .83 15 68,430 2.85 2.85 (.64) 34 136,831 2.54 2.60 (.76)(c) 43 280,782 na 2.50 (.47) 91 540,514 na 2.42 (.13) 7 542,997 na 2.41 (.01) 15 13,563 2.83 2.83 (.62) 34 26,430 2.54 2.60 (.76)(c) 43 57,337 na 2.49 (.46) 91 143,320 na 2.42 (.13) 7 154,378 na 2.40 .01 15 1,304 1.51 1.51 .70 34 17,062 1.24 1.30 .54 (c) 43 33,907 na 1.24 .79 91 166,816 na 1.18 1.11 7 156,999 na 1.18 1.23 15 2 3.46(g) 3.46(g) (1.24)(g) 34 5 1.69 1.75 .09 (c) 43 4 na 2.10(g) (.08)(g) 91 79 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM PERIOD IVY INTERNATIONAL SMALL COMPANIES FUND A 01/01 to 12/31/2002 $ 8.17 01/01 to 12/31/2001 12.71 01/01 to 12/31/2000 12.45 01/01 to 12/31/1999 8.95 01/01 to 12/31/1998 8.66 B 01/01 to 12/31/2002 8.00 01/01 to 12/31/2001 12.53 01/01 to 12/31/2000 12.30 01/01 to 12/31/1999 8.92 01/01 to 12/31/1998 8.63 C 01/01 to 12/31/2002 8.04 01/01 to 12/31/2001 12.60 01/01 to 12/31/2000 12.38 01/01 to 12/31/1999 8.97 01/01 to 12/31/1998 8.65 ADVISOR 01/01 to 12/31/2002 8.23 01/01 to 12/31/2001 12.76 01/01 to 12/31/2000 12.48 07/01(e) to 12/31/1999 9.94 ------------------------------------------------- IVY INTERNATIONAL VALUE FUND A 01/01 to 12/31/2002 9.10 01/01 to 12/31/2001 11.01 01/01 to 12/31/2000 11.99 01/01 to 12/31/1999 9.48 01/01 to 12/31/1998 8.98 B 01/01 to 12/31/2002 8.97 01/01 to 12/31/2001 10.94 01/01 to 12/31/2000 11.91 01/01 to 12/31/1999 9.42 01/01 to 12/31/1998 8.93 C 01/01 to 12/31/2002 8.97 01/01 to 12/31/2001 10.94 01/01 to 12/31/2000 11.92 01/01 to 12/31/1999 9.42 01/01 to 12/31/1998 8.93 ADVISOR 01/01 to 12/31/2002 9.14 01/01 to 12/31/2001 11.03 01/01 to 12/31/2000 11.99 01/01 to 12/31/1999 9.48 02/23(e) to 12/31/1998 9.63 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (16.24%) for the year ended 12/31/02 and (17.26%) for the year ended 12/31/01. 80 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $(.06)(c)(d) $(2.0) $(2.06) $ - $ - $ - (.12)(c)(d) (4.41) (4.53) - .01 .01 (.03)(c)(d) .64 .61 - .35 .35 (.05)(c) 3.58 3.53 - .03 .03 .04 (c) .41 .45 .15 .01 .16 (.10)(c)(d) (1.96) (2.06) - - - (.18)(c)(d) (4.34) (4.52) - .01 .01 (.13)(c) .65 .52 - .29 .29 (.13)(c) 3.54 3.41 - .03 .03 (.03)(c) .41 .38 .08 .01 .09 (.10)(c)(d) (1.96) (2.06) - - - (.18)(c)(d) (4.37) (4.55) - .01 .01 (.12)(c) .64 .52 - .30 .30 (.12)(c) 3.56 3.44 - .03 .03 (.03)(c) .42 .39 .06 .01 .07 (.03)(c)(d) (2.02) (2.05) - - - (.08)(c)(d) (4.44) (4.52) - .01 .01 .02 (c)(d) .64 .66 - .38 .38 - (c) 2.57 2.57 - .03 .03 --------------------------------------------------------------------------------------------------- .08 (c)(d) (1.53)(h) (1.45) - - - .07 (c) (1.96)(h) (1.89) .02 - .02 .14 (c) (1.01) (.87) .04 .07 .11 .09 (c) 2.54 2.63 .10 .02 .12 .08 (c) .52 .60 .08 .02 .10 .01 (c)(d) (1.66) (1.65) - - - (.02)(c) (1.93) (1.95) .02 - .02 .02 (c) (.96) (.94) .01 .02 .03 .01 (c) 2.51 2.52 .01 .02 .03 .01 (c) .51 .52 .01 .02 .03 .01 (c)(d) (1.66) (1.65) - - - (.02)(c) (1.93) (1.95) .02 - .02 .02 (c) (.97) (.95) .01 .02 .03 .02 (c) 2.51 2.53 .01 .02 .03 .01 (c) .51 .52 .01 .02 .03 .10 (c)(d) (1.70) (1.60) - - - .11 (c) (1.98) (1.87) .02 - .02 .50 (c) (1.33) (.83) .05 .08 .13 .04 (c) 2.64 2.68 .10 .07 .17 .11 (c) (.13) (.02) .11 .02 .13 81 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY INTERNATIONAL SMALL COMPANIES FUND A $6.11 (25.21) 8.17 (35.65) 12.71 4.94 12.45 39.45 8.95 5.24 B 5.94 (25.75) 8.00 (36.09) 12.53 4.27 12.30 38.24 8.92 4.46 C 5.98 (25.62) 8.04 (36.13) 12.60 4.25 12.38 38.36 8.97 4.55 ADVISOR 6.18 (24.91) 8.23 (35.44) 12.76 5.32 12.48 25.87 ----------------------------------- IVY INTERNATIONAL VALUE FUND A 7.65 (15.93)(h) 9.10 (17.17)(h) 11.01 (7.25) 11.99 27.79 9.48 6.63 B 7.32 (18.39) 8.97 (17.84) 10.94 (7.94) 11.91 26.81 9.42 5.84 C 7.32 (18.39) 8.97 (17.84) 10.94 (7.97) 11.92 26.91 9.42 5.79 ADVISOR 7.54 (17.51) 9.14 (17.03) 11.03 (6.90) 11.99 28.30 9.48 (.15) (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (16.24%) for the year ended 12/31/02 and (17.26%) for the year ended 12/31/01. 82 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 1,435 2.28 4.59 (.79)(c) 146 3,583 2.24 3.15 (1.15)(c) 118 8,976 2.24 3.77 (.21)(c) 124 1,069 2.33 8.56 (.47)(c) 98 980 2.47 6.38 .39 (c) 18 1,475 2.93 5.24 (1.44)(c) 146 3,190 2.95 3.86 (1.85)(c) 118 5,553 2.96 4.49 (.93)(c) 124 1,238 3.10 9.33 (1.23)(c) 98 1,027 3.24 7.15 (.38)(c) 18 945 2.92 5.23 (1.43)(c) 146 2,308 2.96 3.87 (1.87)(c) 118 4,522 2.96 4.49 (.93)(c) 124 1,196 3.04 9.27 (1.18)(c) 98 1,125 3.16 7.07 (.30)(c) 18 296(g) 1.84 4.15 (.35)(c) 146 982 1.87 2.78 (.78)(c) 118 4,165 1.89 3.42 .15 (c) 124 291 1.83(g) 8.06(g) .03 (c)(g) 98 ------------------------------------------------------------------------------------------- 7,854 1.77 2.32 .91 (c) 48 13,238 1.77 2.15 .58 (c) 39 23,565 1.74 1.92 .96 (c) 36 32,624 1.72 1.87 .92 (c) 21 24,993 1.74 1.88 .80 (c) 16 28,123 2.50 3.05 .18 (c) 48 46,210 2.50 2.88 (.15)(c) 39 75,609 2.51 2.69 .20 (c) 36 95,363 2.51 2.66 .12 (c) 21 80,938 2.49 2.63 .05 (c) 16 9,223 2.50 3.05 .18 (c) 48 16,096 2.51 2.89 (.16)(c) 39 29,726 2.51 2.69 .19 (c) 36 43,995 2.49 2.64 .14 (c) 21 40,408 2.52 2.66 .03 (c) 16 124 1.50 2.05 1.18 (c) 48 377 1.47 1.85 .89 (c) 39 668 1.35 1.53 1.36 (c) 36 2,748 1.38 1.53 1.25 (c) 21 510 1.32(g) 1.45(g) 1.23 (c)(g) 16 83 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM PERIOD IVY PACIFIC OPPORTUNITIES FUND A 01/02 to 12/31/2002 $ 6.72 01/01 to 12/31/2001 7.42 01/01 to 12/31/2000 9.15 01/01 to 12/31/1999 6.30 01/01 to 12/31/1998 8.04 B 01/01 to 12/31/2002 6.56 01/01 to 12/31/2001 7.33 01/01 to 12/31/2000 9.04 01/01 to 12/31/1999 6.24 01/01 to 12/31/1998 7.96 C 01/01 to 12/31/2002 6.55 01/01 to 12/31/2001 7.31 01/01 to 12/31/2000 9.07 01/01 to 12/31/1999 6.25 01/01 to 12/31/1998 7.94 ADVISOR 01/01 to 12/31/2002 6.59 01/01 to 12/31/2001 7.30 01/01 to 12/31/2000 9.03 01/01 to 12/31/1999 6.27 02/10(e) to 12/31/1998 7.89 ------------------------------------------------- IVY GROWTH FUND A 01/01 to 12/31/2002 11.61 01/01 to 12/31/2001 14.98 01/01 to 12/31/2000 22.15 01/01 to 12/31/1999 19.88 01/01 to 12/31/1998 17.80 B 01/02 to 12/31/2002 11.11 01/01 to 12/31/2001 14.48 01/01 to 12/31/2000 21.72 01/01 to 12/31/1999 19.60 01/01 to 12/31/1998 17.72 C 01/01 to 12/31/2002 10.85 01/01 to 12/31/2001 14.14 01/01 to 12/31/2000 21.28 01/01 to 12/31/1999 19.27 01/01 to 12/31/1998 17.47 ADVISOR 01/01 to 12/31/2002 11.58 01/01 to 12/31/2001 14.99 01/01 to 12/31/2000 22.18 01/01 to 12/31/1999 19.91 04/30(e) to 12/31/1998 20.36 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (11.58%) for the year ended 12/31/02 and (9.83%) for the year ended 12/31/01. 84 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .01 (c)(d) $ (.77)(h) $ (.76) $ - $ - $ - (.03)(c)(d) (.66)(h) (.69) .01 - .01 .07 (c) (1.74) (1.67) .06 - .06 .08 (c) 2.86 2.94 .08 .01 .09 .13 (c) (1.78) (1.65) .09 - .09 (.04)(c)(d) (.77) (.81) - - - (.08)(c)(d) (.68) (.76) .01 - .01 .01 (c) (1.71) (1.70) .01 - .01 .02 (c) 2.81 2.83 .02 .01 .03 .05 (c) (1.73) (1.68) .04 - .04 (.03)(c)(d) (.77) (.80) - - - (.08)(c)(d) (.67) (.75) .01 - .01 .01 (c) (1.71) (1.70) .06 - .06 .02 (c) 2.82 2.84 .01 .01 .02 .08 (c) (1.75) (1.67) .02 - .02 .04 (c)(d) (.82) (.78) - - - (.02)(c)(d) (.68) (.70) .01 - .01 .12 (c)(d) (1.82) (1.70) .03 - .03 .04 (c) 2.86 2.90 .13 .01 .14 .08 (c) (1.62) (1.54) .08 - .08 --------------------------------------------------------------------------------------------------- (.09)(c)(d) (3.24) (3.33) - - - (.07)(d) (3.29) (3.36) - .01 .01 (.15) (4.84) (4.99) - 2.18 2.18 (.32) 6.61 6.29 - 4.02 4.02 .01 2.49 2.50 .02 .40 .42 (.18)(c)(d) (3.09) (3.27) - - - (.19)(d) (3.17) (3.36) - .01 .01 (.30) (4.76) (5.06) - 2.18 2.18 (.21) 6.17 5.96 - 3.84 3.84 (.16) 2.46 2.30 .02 .40 .42 (.20)(c)(d) (3.01) (3.21) - - - (.19)(d) (3.09) (3.28) - .01 .01 (.26) (4.70) (4.96) - 2.18 2.18 (.25) 6.08 5.83 - 3.82 3.82 (.16) 2.38 2.22 .02 .40 .42 (.06)(c)(d) (3.26) (3.32) - - - (.08)(d) (3.32) (3.40) - .01 .01 (.15) (4.86) (5.01) - 2.18 2.18 (.04) 6.33 6.29 - 4.02 4.02 .03 (.06) (.03) .02 .40 .42 85 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY PACIFIC OPPORTUNITIES FUND A $ 5.96 $(11.31)(h) 6.72 (9.29)(h) 7.42 (18.25) 9.15 46.72 6.30 (20.56) B 5.75 (12.35) 6.56 (10.35) 7.33 (18.80) 9.04 45.33 6.24 (21.04) C 5.75 (12.21) 6.55 (10.25) 7.31 (18.79) 9.07 45.41 6.25 (21.02) ADVISOR 5.81 (11.84) 6.59 (9.58) 7.30 (18.77) 9.03 46.29 6.27 (19.56) ------------------------------------- IVY GROWTH FUND A 8.28 (28.68) 11.61 (22.43) 14.98 (22.31) 22.15 31.87 19.88 14.05 B 7.84 (29.43) 11.11 (23.21) 14.48 (23.07) 21.72 30.63 19.60 12.99 C 7.64 (29.59) 10.85 (23.20) 14.14 (23.08) 21.28 30.43 19.27 12.72 ADVISOR 8.26 (28.67) 11.58 (22.68) 14.99 (22.37) 22.18 31.78 19.91 (.14) (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (11.58%) for the year ended 12/31/02 and (9.83%) for the year ended 12/31/01. 86 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 5,318 2.21 3.52 .20 (c) 16 6,291 2.21 3.57 (.49)(c) 82 9,096 2.16 3.10 .83 (c) 108 12,738 2.19 2.84 1.01 (c) 23 9,061 2.30 2.86 1.60 (c) 56 2,678 2.96 4.27 (.55)(c) 16 3,966 2.95 4.31 (1.22)(c) 82 6,462 2.92 3.86 .07 (c) 108 7,508 2.97 3.62 .24 (c) 23 6,080 3.08 3.64 .82 (c) 56 539 2.94 4.25 (.53)(c) 16 917 2.90 4.26 (1.18)(c) 82 1,539 3.03 3.97 (.03)(c) 108 776 3.03 3.68 .18 (c) 23 704 2.98 3.54 .92 (c) 56 34 1.74 3.05 .67 (c) 16 3 2.03 3.39 (.31)(c) 82 42 1.77 2.71 1.23 (c) 108 313 1.79 2.44 1.42 (c) 23 10 2.92(g) 3.48(g) .98 (c)(g) 56 ------------------------------------------------------------------------------------------- 113,985 1.75 1.75 (.92) 89 180,806 na 1.51 (.55) 114 261,744 na 1.34 (.73) 94 363,723 na 1.38 (.13) 51 318,444 na 1.38 .03 59 2,511 2.75 2.75 (1.93) 89 5,763 na 2.50 (1.54) 114 7,517 na 2.31 (1.70) 94 8,070 na 2.34 (1.09) 51 4,889 na 2.32 (.90) 59 157 2.99 2.99 (2.17) 89 350 na 2.55 (1.59) 114 744 na 2.33 (1.72) 94 576 na 2.47 (1.22) 51 263 na 2.53 (1.11) 59 138 1.68 1.68 (.86) 89 296 na 1.58 (.62) 114 359 na 1.41 (.80) 94 438 na 1.42 (.17) 51 347 na 1.18(g) .24 (g) 59 87 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY US BLUE CHIP FUND A 01/01 to 12/31/2002 $ 9.36 01/01 to 12/31/2001 10.59 01/01 to 12/31/2000 12.32 01/01 to 12/31/1999 10.74 11/02(e) to 12/31/1998 10.00 B 01/01 to 12/31/2002 9.20 01/01 to 12/31/2001 10.48 01/01 to 12/31/2000 12.29 01/01 to 12/31/1999 10.72 11/06(e) to 12/31/1998 10.30 C 01/01 to 12/31/2002 9.19 01/01 to 12/31/2001 10.49 01/01 to 12/31/2000 12.30 01/01 to 12/31/1999 10.72 11/06(e) to 12/31/1998 10.30 ADVISOR 01/01 to 12/31/2002 9.44 01/01 to 12/31/2001 10.65 01/01 to 12/31/2000 12.35 01/01 to 12/31/1999 10.74 11/02(e) to 12/31/1998 10.00 ------------------------------------------------- IVY US EMERGING GROWTH FUND A 01/01 to 12/31/2002 20.16 01/01 to 12/31/2001 30.31 01/01 to 12/31/2000 47.29 01/01 to 12/31/1999 32.65 01/01 to 12/31/1998 27.67 B 01/01 to 12/31/2002 19.19 01/01 to 12/31/2001 29.10 01/01 to 12/31/2000 46.01 01/01 to 12/31/1999 31.93 01/01 to 12/31/1998 27.26 C 01/01 to 12/31/2002 19.18 01/01 to 12/31/2001 29.08 01/01 to 12/31/2000 45.98 01/01 to 12/31/1999 31.91 01/01 to 12/31/1998 27.23 ADVISOR 01/01 to 12/31/2002 20.36 01/01 to 12/31/2001 30.57 01/01 to 12/31/2000 47.57 01/01 to 12/31/1999 32.79 02/18(e) to 12/31/1998 28.82 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total returns for US Blue Chip and US Emerging Growth were not affected as redemption fees were less than 0.01 per share. 88 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .00 (c)(d) $(2.04)(h) $(2.04) $ - $ - $ - (.02)(c)(d) (1.21) (1.23) - - - (.03)(c) (1.54) (1.57) - .16 .16 (.01)(c) 1.66 1.65 .07 - .07 - (c)(d) .74 .74 - - - (.06)(c)(d) (2.00) (2.06) - - - (.09)(c)(d) (1.19) (1.28) - - - (.09)(c) (1.56) (1.65) - .16 .16 (.07)(c) 1.65 1.58 .01 - .01 (.01)(c)(d) .43 .42 - - - (.07)(c)(d) (1.99) (2.06) - - - (.09)(c)(d) (1.21) (1.30) - - - (.12)(c) (1.53) (1.65) - .16 .16 (.07)(c) 1.66 1.59 .01 - .01 (.01)(c)(d) .43 .42 - - - .04 (c)(d) (2.07) (2.03) - - - .01 (c)(d) (1.22) (1.21) - - - (.01)(c) (1.53) (1.54) - .16 .16 .02 (c) 1.69 1.71 .10 - .10 .01 (c)(d) .73 .74 - - - --------------------------------------------------------------------------------------------------- (.34)(c)(d) (7.26)(h) (7.60) - - - (.37) (9.78)(h) (10.15) - - - (.50) (11.94) (12.44) - 4.54 4.54 (.49) 20.70 20.21 - 5.57 5.57 (.44)(d) 5.42 4.98 - - - (.45)(c)(d) (6.88) (7.33) - - - (.58) (9.33) (9.91) - - - (.81) (11.56) (12.37) - 4.54 4.54 (.77) 20.15 19.38 - 5.30 5.30 (.65)(d) 5.32 4.67 - - - (.45)(c)(d) (6.88) (7.33) - - - (.61) (9.29) (9.90) - - - (.92) (11.44) (12.36) - 4.54 4.54 (.80) 20.19 19.39 - 5.32 5.32 (.63)(d) 5.31 4.68 - - - (.31)(c)(d) (7.34) (7.65) - - - (.34) (9.87) (10.21) - - - (.40) (12.06) (12.46) - 4.54 4.54 (.44) 20.85 20.41 - 5.63 5.63 (.23)(d) 4.20 3.97 - - - 89 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY US BLUE CHIP FUND A $ 7.32 (21.79)(h) 9.36 (11.61) 10.59 (12.69) 12.32 15.35 10.74 7.40 B 7.14 (22.39) 9.20 (12.21) 10.48 (13.37) 12.29 14.74 10.72 4.08 C 7.13 (22.42) 9.19 (12.39) 10.49 (13.36) 12.30 14.84 10.72 4.08 ADVISOR 7.41 (21.50) 9.44 (11.36) 10.65 (12.42) 12.35 15.89 10.74 7.40 ----------------------------------- IVY US EMERGING GROWTH FUND A 12.56 (37.70)(h) 20.16 (33.49)(h) 30.31 (25.81) 47.29 62.47 32.65 18.00 B 11.86 (38.20) 19.19 (34.05) 29.10 (26.38) 46.01 61.27 31.93 17.13 C 11.85 (38.22) 19.18 (34.04) 29.08 (26.37) 45.98 61.32 31.91 17.19 ADVISOR 12.71 (37.57) 20.36 (33.40) 30.57 (25.70) 47.57 62.85 32.79 13.78 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total returns for US Blue Chip and US Emerging Growth were not affected as redemption fees were less than $0.01 per share. 90 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 24,950 1.57 2.08 .03 (c) 85 38,754 1.56 1.83 (.16)(c) 74 57,584 1.57 1.81 (.47)(c) 69 3,353 1.46 3.49 (.12)(c) 80 726 1.43(g) 6.34(g) .02 (c)(g) 3 9,438 2.31 2.82 (.71)(c) 85 19,379 2.31 2.58 (.90)(c) 74 24,314 2.31 2.55 (1.21)(c) 69 8,742 2.15 4.18 (.81)(c) 80 1,047 2.13(g) 7.04(g) (.68)(c)(g) 3 448 2.40 2.91 (.80)(c) 85 1,119 2.36 2.63 (.96)(c) 74 2,965 2.30 2.54 (1.20)(c) 69 2,497 2.08 4.11 (.74)(c) 80 110 2.22(g) 7.13(g) (.77)(c)(g) 3 719 1.16 1.67 .43 (c) 85 808 1.26 1.53 .14 (c) 74 1,061 1.24 1.48 (.13)(c) 69 920 1.10 3.13 .24 (c) 80 537 1.08(g) 5.99(g) .37 (c)(g) 3 ------------------------------------------------------------------------------------------- 16,481 2.24 2.24 (2.17) 109 43,974 na 1.80 (1.33) 133 78,840 na 1.55 (1.23) 83 101,798 na 1.69 (1.53) 107 62,961 na 1.70 (1.48) 67 10,104 3.08 3.08 (3.01) 109 26,856 na 2.61 (2.14) 133 56,036 na 2.31 (2.00) 83 79,659 na 2.43 (2.27) 107 52,940 na 2.45 (2.23) 67 1,238 3.06 3.06 (3.00) 109 3,998 na 2.61 (2.14) 133 9,048 na 2.30 (1.98) 83 15,438 na 2.39 (2.23) 107 9,664 na 2.40 (2.18) 67 480 2.04 2.04 (1.98) 109 991 na 1.63 (1.16) 133 1,987 na 1.36 (1.04) 83 1,432 na 1.46 (1.30) 107 740 na 1.22 (g) (1.00)(g) 67 91 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY BOND FUND A 01/01 to 12/31/2002 $ 8.09 01/01 to 12/31/2001 7.89 01/01 to 12/31/2000 8.29 01/01 to 12/31/1999 9.54 01/01 to 12/31/1998 10.22 B 01/01 to 12/31/2002 8.06 01/01 to 12/31/2001 7.88 01/01 to 12/31/2000 8.28 01/01 to 12/31/1999 9.53 01/01 to 12/31/1998 10.22 C 01/01 to 12/31/2002 8.08 01/01 to 12/31/2001 7.91 01/01 to 12/31/2000 8.31 01/01 to 12/31/1999 9.55 01/01 to 12/31/1998 10.24 ADVISOR 01/01 to 12/31/2002 8.12 01/01 to 12/31/2001 7.90 01/01 to 12/31/2000 8.28 01/01 to 12/31/1999 9.54 01/20(e) to 12/31/1998 10.28 ------------------------------------------------- IVY MONEY MARKET FUND A 01/01 to 12/31/2002 1.00 01/01 to 12/31/2001 1.00 01/01 to 12/31/2000 1.00 01/01 to 12/31/1999 1.00 01/01 to 12/31/1998 1.00 B 01/01 to 12/31/2002 1.00 01/01 to 12/31/2001 1.00 01/01 to 12/31/2000 1.00 01/01 to 12/31/1999 1.00 01/01 to 12/31/1998 1.00 C 01/01 to 12/31/2002 1.00 01/01 to 12/31/2001 1.00 01/01 to 12/31/2000 1.00 01/01 to 12/31/1999 1.00 01/01 to 12/31/1998 1.00 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. na -- not applicable (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been 8.83% for the year ended 12/31/102 and 8.55% for the year ended 12/31/01. (i) Dividend includes a return of capital distribution of $0.01 per average share. (j) The seven day and thirty day yield for Class A shares at December 31, 2002 was 0.45% and 0.40%, respectively. The seven day yield for Class B shares at December 31, 2002 was 0.46% and the thirty day yield was 0.42%. The seven day yield for Class C shares at December 31, 2002 was 0.55% and the thirty day yield was 0.46%. 92 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .48 (d) $ .26 (h) $ .74 $ .48 $ - $ .48 .49 (d) .18 (h) .67 .47(i) - .47 .55 (.40) .15 .55 - .55 .67 (1.24) (.57) .68 - .68 .69 (.69) - .68 - .68 .41 (d) .19 .60 .42 - .42 .42 (d) .17 .59 .41(i) - .41 .48 (.40) .08 .48 - .48 .59 (1.24) (.65) .60 - .60 .59 (.67) (.08) .61 - .61 .42 (d) .19 .61 .42 - .42 .42 (d) .16 .58 .41(i) - .41 .48 (.40) .08 .48 - .48 .62 (1.25) (.63) .61 - .61 .60 (.68) (.08) .61 - .61 .51 (d) .16 .67 .50 - .50 .49 (d) .21 .70 .48(i) - .48 .56 (.38) .18 .56 - .56 .67 (1.24) (.57) .69 - .69 .69 (.72) (.03) .71 - .71 --------------------------------------------------------------------------------------------------- .01 (c)(d) - .01 .01 - .01 .03 (c) - .03 .03 - .03 .05 (c) - .05 .05 - .05 .04 (c) - .04 .04 - .04 .05 (c) - .05 .05 - .05 .01 (c)(d) - .01 .01 - .01 .03 (c) - .03 .03 - .03 .05 (c) - .05 .05 - .05 .04 (c) - .04 .04 - .04 .05 (c) - .05 .05 - .05 .01 (c)(d) - .01 .01 - .01 .03 (c) - .03 .03 - .03 .05 (c) - .05 .05 - .05 .04 (c) - .04 .04 - .04 .05 (c) - .05 .05 - .05 93 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A) IVY BOND FUND A $ 8.35 9.49(h) 8.09 8.70(h) 7.89 1.89 8.29 (6.17) 9.54 - B 8.24 7.64 8.06 7.61 7.88 1.03 8.28 (6.97) 9.53 (.81) C 8.27 7.79 8.08 7.51 7.91 1.07 8.31 (6.81) 9.55 (.81) ADVISOR 8.29 8.52 8.12 9.07 7.90 2.26 8.28 (6.21) 9.54 (.30) -------------------------------- IVY MONEY MARKET FUND A 1.00 .78 1.00 3.12 1.00 5.37 1.00 4.16 1.00 4.51 B 1.00 .85 1.00 3.19 1.00 5.35 1.00 4.30 1.00 4.59 C 1.00 .74 1.00 3.10 1.00 5.65 1.00 4.14 1.00 4.55 (a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. na -- not applicable (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been 8.83% for the year ended 12/31/02 and 8.55% for the year ended 12/31/01. (i) Dividend includes a return of capital distribution of $0.01 per average share. (j) See page 92 for yields. 94 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued) RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 31,148 1.48 1.48(g) 5.91 (g) 15 36,401 na 1.41 6.03 22 52,305 na 1.62 6.71 26 69,249 na 1.52 7.40 28 109,445 na 1.39 6.88 43 17,171 2.31 2.31(g) 5.09 (g) 15 19,305 na 2.25 5.19 22 20,079 na 2.45 5.88 26 27,550 na 2.36 6.55 28 42,166 na 2.13 6.13 43 2,186 2.26 2.26(g) 5.14 (g) 15 2,188 na 2.18 5.25 22 2,726 na 2.40 5.93 26 3,928 na 2.26 6.65 28 11,266 na 2.12 6.15 43 561 1.27 1.27(g) 6.13 (g) 15 170 na 1.32 6.12 22 192 na 1.49 6.84 26 332 na 1.43 7.49 28 347 na 1.11 (g) 7.16 (g) 43 ------------------------------------------------------------------------------------------- 14,684 .88(g) 1.73(g) .78 (c)(g) na 12,904 .87 1.59 3.12 (c) na 20,394 .85 1.52 5.38 (c) na 18,524 .88 1.40 4.17 (c) na 19,103 .87 1.42 4.50 (c) na 6,104 .80(g) 1.65(g) .85 (c)(g) na 6,680 .80 1.52 3.19 (c) na 5,872 .87 1.54 5.36 (c) na 7,486 .77 1.29 4.28 (c) na 6,636 .76 1.31 4.61 (c) na 813 .84(g) 1.69(g) .82 (c)(g) na 519 .88 1.60 3.10 (c) na 1,975 .72 1.39 5.51 (c) na 372 .87 1.39 4.18 (c) na 423 .81 1.36 4.56 (c) na 95 December 31, 2002 NOTES TO FINANCIAL STATEMENTS Ivy Cundill Global Value Fund ("Cundill"), Ivy Developing Markets Fund ("Developing Markets"), Ivy European Opportunities Fund ("European Opportunities"), Ivy Global Fund ("Global"), Ivy Global Natural Resources Fund ("Natural Resources"), Ivy Global Science & Technology Fund ("Science & Technology"), Ivy International Fund ("International"), Ivy International Small Companies Fund ("Small Companies"), Ivy International Value Fund ("International Value"), Ivy Pacific Opportunities Fund ("Pacific Opportunities"), Ivy Growth Fund ("Growth"), Ivy US Blue Chip Fund ("Blue Chip"), Ivy US Emerging Growth Fund ("Emerging Growth"), Ivy Bond Fund ("Bond"), and Ivy Money Market Fund ("Money Market"), (the "Funds"), are each 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 (except for Money Market) Advisor Class are authorized. Cundill, European Opportunities, Science & Technology, International, Small Companies, International Value, Blue Chip and Bond also have an unlimited number of shares of Class I 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 Funds in the preparation of their financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America. 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 market on which the security is traded most extensively. If there were no sales on the market on which the security is traded most extensively and the security is traded on more than one market, or on one or more exchanges in the over-the-counter market, the market 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 market 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 calculated mean between the last bid and the last 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 or groups of 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, net of foreign withholding taxes, 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. Realized gains and losses from security transactions are calculated on an identified cost basis. CASH -- The Funds classify as cash amounts on deposit with the Funds' custodian. These amounts earn interest at variable interest rates. At December 31, 2002, the interest rate was 0.60%. Amounts classified as Due to Custodian at period end represent bank overdrafts. FEDERAL INCOME TAXES -- The Funds intend 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 following funds earned foreign source dividends that were subject to foreign withholding tax in the amounts noted below. The funds intend to elect to pass through to their shareholders their proportionate share of such taxes. Shareholders may report their share of foreign taxes paid as either a tax credit or itemized deduction. FOREIGN SOURCE FOREIGN FUND DIVIDENDS WITHHOLDING TAX Cundill $ 86,007 $ 6,544 European Opportunities 2,072,916 217,458 International 7,044,026 648,268 Small Companies 116,782 13,174 International Value 1,653,703 153,049 The following Funds have net tax-basis capital loss carryovers as of December 31, 2002 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 approximate carryover amounts and expiration dates are as follows. 96 December 31, 2002 NOTES TO FINANCIAL STATEMENTS (continued) CAPITAL LOSS FUND CARRYOVER EXPIRATION DATES Cundill $ 294,000 $79,000 in 2009 and 215,000 in 2010. ------------------------------------------------------------------------------ Developing Markets 11,599,000 $529,000 in 2005, 6,822,000 in 2006, 1,314,000 in 2007, 1,669,000 in 2008, 1,015,000 in 2009 and 250,000 in 2010. ------------------------------------------------------------------------------ European Opportunities 53,741,000 $34,091,000 in 2009 and 19,650,000 in 2010. ------------------------------------------------------------------------------ Global 2,625,000 $1,490,000 in 2009 and 1,135,000 in 2010. ------------------------------------------------------------------------------ Natural Resources 8,693,000 $430,000 in 2005, 1,920,000 in 2006, 5,086,000 in 2007 and 1,257,000 in 2010. ------------------------------------------------------------------------------ Science & Technology 47,348,000 $1,283,000 in 2008, 39,009,000 in 2009 and 7,056,000 in 2010. ------------------------------------------------------------------------------ International 266,204,000 $141,106,000 in 2009 and 125,098,000 in 2010. ------------------------------------------------------------------------------ Small Companies 10,693,000 $4,695,000 in 2009 and 5,998,000 in 2010. ------------------------------------------------------------------------------ International Value 15,693,000 $3,103,000 in 2006, 1,065,000 in 2008, 3,397,000 in 2009 and 8,128,000 in 2010. ------------------------------------------------------------------------------ Pacific Opportunities 10,379,000 $203,000 in 2003, 1,033,000 in 2004, 1,937,000 in 2005, 4,238,000 in 2006, 129,000 in 2007, 852,000 in 2008, 1,867,000 in 2009 and 120,000 in 2010. ------------------------------------------------------------------------------ Growth 71,194,000 $39,979,000 in 2009 and 31,215,000 in 2010. ------------------------------------------------------------------------------ Blue Chip 13,979,000 $6,919,000 in 2009 and 7,060,000 in 2010. ------------------------------------------------------------------------------ Emerging Growth 39,369,000 $24,758,000 in 2009 and 14,611,000 in 2010. ------------------------------------------------------------------------------ Bond 28,615,000 $1,484,000 in 2003, 366,000 in 2006, 12,226,000 in 2007, 10,317,000 in 2008 and 4,222,000 in 2009. ------------------------------------------------------------------------------ The following funds have elected to treat net capital and currency losses incurred in the two-month period ended December 31, 2002, as having been incurred in the following fiscal year for federal income tax purposes. The amounts are as follows: FUND AMOUNT Cundill $ 134,859 -------------------------------------------------------------------------- European Opportunities 2,627,020 -------------------------------------------------------------------------- Global 124,291 -------------------------------------------------------------------------- Natural Resources 281,940 -------------------------------------------------------------------------- Science & Technology 1,479,825 -------------------------------------------------------------------------- International 12,125,005 -------------------------------------------------------------------------- Small Companies 623,915 -------------------------------------------------------------------------- International Value 450,043 -------------------------------------------------------------------------- Pacific Opportunities 17,312 -------------------------------------------------------------------------- Growth 3,497,497 -------------------------------------------------------------------------- Blue Chip 389,873 -------------------------------------------------------------------------- Emerging Growth 3,012,650 -------------------------------------------------------------------------- Distributions during the year ended December 31, 2002 were characterized as follows for tax purposes: ORDINARY LONG-TERM RETURN OF TOTAL FUND INCOME CAPITAL GAIN CAPITAL DISTRIBUTION Cundill $ 49,277 $ -- $ -- $ 49,277 ----------------------------------------------------------------------------- Developing Markets 23,706 -- -- 23,706 ----------------------------------------------------------------------------- Natural Resources 105,071 -- -- 105,071 ----------------------------------------------------------------------------- International 37,329 -- -- 37,329 ----------------------------------------------------------------------------- Bond 3,032,709 -- -- 3,032,709 ----------------------------------------------------------------------------- Money Market 163,276 -- -- 163,276 ----------------------------------------------------------------------------- Distributions during the year ended December 31, 2001 were characterized as follows for tax purposes: ORDINARY LONG-TERM RETURN OF TOTAL FUND INCOME CAPITAL GAIN CAPITAL DISTRIBUTION Cundill $ 60,307 $ -- $ -- $ 60,307 ----------------------------------------------------------------------------- European Opportunities 253,993 2,515 -- 256,508 ----------------------------------------------------------------------------- Natural Resources 232,003 -- -- 232,003 ----------------------------------------------------------------------------- Small Companies 9,928 -- -- 9,928 ----------------------------------------------------------------------------- International Value 159,576 -- -- 159,576 ----------------------------------------------------------------------------- Pacific Opportunities 17,435 -- -- 17,435 ----------------------------------------------------------------------------- Growth -- 155,546 -- 155,546 ----------------------------------------------------------------------------- Bond 3,594,609 -- 108,561 3,703,170 ----------------------------------------------------------------------------- Money Market 728,899 -- -- 728,899 ----------------------------------------------------------------------------- 97 December 31, 2002 NOTES TO FINANCIAL STATEMENTS The net unrealized appreciation (depreciation) for U.S. Federal income tax purposes at December 31, 2002 were comprised of the following: NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ FUND APPRECIATION DEPRECIATION (DEPRECIATION) Cundill $ 132,905 $ (479,528) $ (346,623) -------------------------------------------------------------------- Developing Markets 473,293 (1,194,264) (720,971) -------------------------------------------------------------------- European Opportunities 8,457,994 (39,236,454) (30,778,460) -------------------------------------------------------------------- Global 300,320 (1,119,029) (818,709) -------------------------------------------------------------------- Natural Resources 4,355,835 (4,855,779) (499,944) -------------------------------------------------------------------- Science & Technology 82,980 (222,525) (139,545) -------------------------------------------------------------------- International 15,901,651 (73,990,054) (58,088,403) -------------------------------------------------------------------- Small Companies 282,386 (848,880) (566,494) -------------------------------------------------------------------- International Value 4,092,371 (9,029,640) (4,937,269) -------------------------------------------------------------------- Pacific Opportunities 1,033,235 (1,734,811) (701,576) -------------------------------------------------------------------- Growth 10,187,473 (9,811,830) 375,643 -------------------------------------------------------------------- Blue Chip 3,348,563 (4,917,139) (1,568,576) -------------------------------------------------------------------- Emerging Growth 2,607,017 (1,408,977) 1,198,040 -------------------------------------------------------------------- Bond 2,698,351 (2,130,590) 567,761 -------------------------------------------------------------------- UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM FUND INCOME CAPITAL GAIN Natural Resources $276,704 $ - --------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared and paid monthly for Bond. Distributions from net investment income are declared daily and paid monthly for Money Market. Distributions from net investment income for all other Funds and distributions from realized gains for all Funds, 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. Foreign transactions may involve risks not typically associated with domestic transactions including, but not limited to, unanticipated movements in exchange rates, the degree of government supervision and regulation of security markets and the possibility of political and economic instability. For foreign securities, the Funds do 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. FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts are agreements to exchange one currency for another at a future date and at a specified price. The Funds (excluding Money Market) may use forward foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund's foreign currency exposure. The U.S. dollar market value, contract value and the foreign currencies that each fund has committed to buy or sell are shown in the Schedule of Investments, as applicable. These amounts represent the aggregate exposure to each foreign currency acquired or hedged through forward foreign currency contracts at December 31, 2002. Forward foreign currency contracts are reflected as both a forward foreign currency contract to buy and a forward foreign currency contract to sell. Forward foreign currency contracts to buy generally are used to acquire exposure to foreign currencies, while forward foreign currency contracts to sell are used to hedge investments against currency fluctuations. Also, a forward foreign currency contract to buy or sell can offset a previously acquired opposite forward foreign currency contract. Forward foreign currency contracts are marked-to-market daily. The change in a contract's market value is recorded by a fund as an unrealized gain or loss. When the contract is closed or delivery is taken, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of the Fund's securities, but it does establish a rate of exchange that can be achieved in the future. These forward foreign currency contracts involve market risk in excess of unrealized appreciation (depreciation) of forward foreign currency contracts reflected in the Fund's Statement of Assets and Liabilities. Although forward foreign currency contracts used for hedging purposes limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. OPTIONS -- An option is a right to buy or sell a particular security at a specified price within a limited period of time. The buyer of the option, in return for a premium paid to the seller, has the right to buy, in the case of a call option, or sell, in the case of a put option, the underlying security of the contract. An option on a stock index gives the purchaser the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund, as writer of a covered call option, has no control over whether the underlying securities may be sold (called) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the securities underlying the written option. By writing a covered call option, the Fund is obligated to own or have the right to acquire, through exchange or conversion, the underlying security during the option period. 98 December 31, 2002 NOTES TO FINANCIAL STATEMENTS (continued) Certain Funds may invest in option contracts for the purpose of increasing or decreasing the exposure to changing security prices, interest rates, currency exchange rates, commodity prices, or other factors that affect the value of the Fund's securities. When the fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset or a liability. The asset or liability is subsequently marked-to-market daily to reflect the current market value of the option written. Premiums received or paid from writing or purchasing options which expire on the stipulated expiration date or as a result of the Fund entering into a closing purchase transaction are treated by the Fund on the expiration date as realized gains (or losses if the cost of the closing transaction exceeds the premium received upon the original sale) without regard to any unrealized gain or loss on the underlying security. If an option is exercised, the premium paid or received is added to the cost of purchase or proceeds of the sale of the underlying security in determining whether the Fund has realized a gain or loss on the transaction. Exchange traded written options are valued daily at the last sale price or, in the absence of a sale, at the calculated mean of the last bid and the last asked price. Transactions in written covered call options or purchased put options, if any, are reflected in the Schedules of Investments. Transactions in call options written for the year ended December 31, 2002 were: NUMBER OF PREMIUMS CONTRACTS RECEIVED GLOBAL Options outstanding at December 31, 2001 40 $ 4,883 Options written - - Options terminated in closing purchase transactions (10) (875) Options expired (30) (4,008) Options exercised - - ---------------------- Options outstanding at December 31, 2002 - $ - ====================== SCIENCE & TECHNOLOGY Options outstanding at December 31, 2001 - $ - Options written 132 28,823 Options terminated in closing purchase transactions - - Options expired - - Options exercised - - ---------------------- Options outstanding at December 31, 2002 132 $ 28,823 ====================== INTERNATIONAL Options outstanding at December 31, 2001 401,110 $1,041,190 Options written - - Options terminated in closing purchase transactions (2,378) (208,027) Options expired (398,732) (833,163) Options exercised - - ---------------------- Options outstanding at December 31, 2002 - $ - ====================== NUMBER OF PREMIUMS CONTRACTS RECEIVED INTERNATIONAL VALUE Options outstanding at December 31, 2001 43,650 $ 78,077 Options written - - Options terminated in closing purchase transactions - - Options expired (43,650) (78,077) Options exercised - - ---------------------- Options outstanding at December 31, 2002 - $ - ====================== GROWTH Options outstanding at December 31, 2001 790 $ 274,091 Options written 546 111,606 Options terminated in closing purchase transactions (182) (79,091) Options expired (918) (237,674) Options exercised (236) (68,932) ---------------------- Options outstanding at December 31, 2002 - $ - ====================== EMERGING GROWTH Options outstanding at December 31, 2001 943 $ 333,190 Options written 483 97,986 Options terminated in closing purchase transactions (199) (87,030) Options expired (962) (258,636) Options exercised (265) (85,510) ---------------------- Options outstanding at December 31, 2002 - $ - ====================== Transactions in put options purchased for the year ended December 31, 2002 were: SCIENCE & TECHNOLOGY Options outstanding at December 31, 2001 - $ - Options purchased 58 12,294 Options terminated in closing purchase transactions - - Options expired - - Options exercised - - ---------------------- Options outstanding at December 31, 2002 58 $ 12,294 ====================== SECURITIES LENDING -- Boston Global Advisors ("BGA") as lending agent, may loan the securities of designated Funds to certain qualified institutions approved by the Funds. For securities loaned, collateral values for domestic and foreign securities are maintained at not less than 102% and 105%, respectively, of the value of the securities on loan by pricing both the securities on loan and the collateral daily. The collateral consists of cash invested in the Quality Portfolio of the Boston Global Investment Trust ("Trust") which consists predominantly of collateral pledged by borrowers in securities lending transactions arranged by BGA. The Trust invests in money market instruments, U.S. Treasury Bills, U.S. agency obligations, commercial paper and other highly rated, liquid investments. Securities' lending, as with other extensions of credit, involves the risk that the borrower may default. Although securities loaned will be fully collateralized at all times, the Funds may experience delays in, or may be prevented from, recovering the collateral. During the period that the Funds seek to enforce their rights against the borrower, the collateral and securities loaned remain subject to fluctuation in market value. For the year ended December 31, 2002, International and International Value received $245,916 and $51,834, respectively, in income, net of related expenses, resulting from securities lending activities which is included in interest income on the Statement of Operations. Securities on loan as of December 31, 2002 are indicated in the Schedule of Investments. 99 December 31, 2002 NOTES TO FINANCIAL STATEMENTS DEFERRED ORGANIZATION EXPENSES -- Organization expenses incurred prior to the effectiveness of Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" for International Value have been deferred and are being amortized on a straight-line basis over a five year period. REDEMPTION FEES -- Each Fund (other than Money Market) may deduct a redemption or exchange fee of 2.00% from any redemption or exchange proceeds if a shareholder sells or exchanges Class A shares after holding them less than 30 days. These fees are paid to the Fund rather than the investment adviser or transfer agent and are designed to offset the brokerage commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short-term shareholder trading. Fees collected by the Fund are recorded as additions to capital paid-in and are included in the Class A fund share transactions on the Statement of Changes in Net Assets. As presented in gross dollars and per average shares outstanding for the year ended December 31, 2002, the Funds received the following redemption fees: YEAR ENDING PER SHARE FUND 12/31/02 12/31/02 Cundill $ 62 $ - ------------------------------------------------------------------- Developing Markets 30 - ------------------------------------------------------------------- European Opportunities 128,514 0.02 ------------------------------------------------------------------- Global 66,770 0.08 ------------------------------------------------------------------- Natural Resources 67,653 0.03 ------------------------------------------------------------------- Science & Technology 2,538 - ------------------------------------------------------------------- International 585,021 0.03 ------------------------------------------------------------------- Small Companies 96 - ------------------------------------------------------------------- International Value 216,857 0.03 ------------------------------------------------------------------- Pacific Opportunities 26,064 0.02 ------------------------------------------------------------------- Growth 2,113 - ------------------------------------------------------------------- Blue Chip 105 - ------------------------------------------------------------------- Emerging Growth 1,569 - ------------------------------------------------------------------- Bond 307,897 0.05 ------------------------------------------------------------------- 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 accounting principles generally accepted in the United States of America. These differences primarily relate to net operating losses, capital loss carryovers, wash sales, option transactions, foreign denominated securities, passive foreign investment companies and non-deductible organization expenses, if applicable. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, each of the Funds may make reclassifications among certain of their capital accounts without impacting the net asset value of each respective Fund. 2. RELATED PARTIES Until December 31, 2002, Ivy Management, Inc. ("IMI") provided business management services to the Funds and was the Investment Adviser to all Funds other than Natural Resources. Effective December 16, 2002, Waddell & Reed Financial, Inc. ("Waddell & Reed"), a U.S. mutual fund firm, completed its acquisition of the entire operation of Mackenzie Investment Management Inc. ("MIMI"). At this time, Ivy Acquisition Corporation ("IAC") was formed as a registered investment adviser. On December 31, 2002, IMI merged into IAC and IAC changed its name to Waddell & Reed Ivy Investment Company ("WRIICO"), the Funds' current investment adviser. WRIICO and Ivy Mackenzie Distributors, Inc. ("IMDI"), the Funds' distributor, are now indirect subsidiaries of Waddell & Reed. For its services, WRIICO receives a fee paid monthly based on average daily net assets ("ANA") at the following annual rates: Cundill (1) 1.00% International Value 1.00% Developing Markets 1.00% Pacific Opportunities 1.00% Natural Resources (2) 1.00% Blue Chip 0.75% Science & Technology 1.00% Emerging Growth 0.85% Small Companies (3) 1.00% Money Market 0.40% For certain funds, the annual rates decrease as overall ANA increases. The following chart summarizes those funds and relevant rate and asset sizes: European Opportunities (3) 1.00% of the first $250 million ANA 0.85% next $250 million ANA 0.75% excess ------------------------------------------------------------ Global 1.00% of the first $500 million ANA 0.75% excess ------------------------------------------------------------ International 1.00% of the first $2.5 billion ANA 0.90% next $500 million 0.80% next $500 million 0.70% excess ------------------------------------------------------------ Growth 0.85% of the first $350 million ANA 0.75% excess ------------------------------------------------------------ Bond 0.50% of the first $500 million ANA 0.40% excess (1) Peter Cundill & Associates, Inc. is the sub-advisor of the Fund. WRIICO, not the Fund, is obligated to compensate the sub-advisor. (2) For Natural Resources, Mackenzie Financial Corporation ("MFC") is the investment advisor of the Fund. MFC receives a fee monthly at the annual rate of 0.50% of ADNA. The fee is collected from the Fund and remitted to MFC by WRIICO. (3) Henderson Investment Management Limited is the sub-advisor of the Funds. WRIICO, not the Funds, is obligated to compensate the sub-advisor. For the year ended December 31, 2002, with respect to Cundill, Developing Markets, Global, Natural Resources, Science & Technology, Small Companies, and Pacific Opportunities, WRIICO contractually limited each Fund's total operating expenses (excluding 12b-1 fees and certain other expenses) to an annual rate of 1.95% of each Fund's ANA. For the year ended December 31, 2002 with respect to International Value, Blue Chip and Money Market, WRIICO voluntarily limits each Fund's total operating expenses (excluding 12b-1 fees and certain other expenses) to annual rates of 1.50%, 1.34% and .85%, respectively. 100 December 31, 2002 NOTES TO FINANCIAL STATEMENTS (continued) Effective November 1, 2001 through the one-year period ended October 31, 2002, IMI, now WRIICO had contractually agreed to waive 12% of the 1.00% annual management fee for European Opportunities. MIMI provided certain administrative, accounting and pricing services for each Fund. Effective December 17, 2002, IAC, now WRIICO assumed all of MIMI's duties under the Fund Accounting Services Agreement and the Administrative Services Agreement. For those services, each Fund pays WRIICO fees plus certain out-of-pocket expenses. Such fees and expenses are reflected as Administrative services fee and Fund accounting in each Fund's Statement of Operations. At December 31, 2002, WRIICO owned approximately 9% of Cundill's shares outstanding. IMDI, a wholly owned subsidiary of WRIICO, is the underwriter and distributor of each Fund's shares, and as such, purchases shares from each Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 2002, the net amount of underwriting discount retained by IMDI is listed below. FUND AMOUNT Cundill $ 4,568 Developing Markets 233 European Opportunities 5,485 Global 301 Natural Resources 23,194 Science & Technology 4,494 International 8,489 Small Companies 347 International Value 377 Pacific Opportunities 287 Growth 6,343 Blue Chip 1,846 Emerging Growth 5,499 Bond 2,856 Under Service and Distribution Plans, each Fund except Growth, Blue Chip and International, reimburses IMDI for service fee payments made to brokers at an annual rate of .25% of its average net assets, excluding Class I and Advisor Class. For Growth, Blue Chip and International, each Fund reimburses IMDI at an annual rate not to exceed .25% of its average net assets of shares issued after December 31, 1991, excluding Class I and 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 each Fund. Such fees, detailed below, are reflected as 12b-1 service and distribution fees in the Statement of Operations. FUND CLASS A CLASS B CLASS C Cundill $ 1,421 $ 10,916 $ 1,476 Developing Markets 6,667 20,152 5,622 European Opportunities 68,690 297,574 223,062 Global 10,405 17,747 1,183 Natural Resources 38,138 79,517 41,104 Science & Technology 20,504 66,839 16,780 International 378,397 986,230 191,552 Small Companies 6,573 22,835 16,660 International Value 26,116 366,679 122,381 Pacific Opportunities 15,765 33,518 7,847 Growth 79,323 37,410 2,104 Blue Chip 66,022 142,492 7,596 Emerging Growth 68,411 163,675 23,569 Bond 84,849 177,437 20,523 3. BOARD'S COMPENSATION Trustees who are not affiliated with WRIICO receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 101 NOTES TO FINANCIAL STATEMENTS 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B, Class C, Advisor Class, and Class I were as follows: CLASS A FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 CUNDILL (A) SHARES AMOUNT SHARES AMOUNT ----------- ----------- ------------- ----------- ------------- Sold 157,980 $ 1,414,301 21,522 $ 205,778 Issued on reinvestment of dividends 1,442 11,998 615 5,756 Repurchased (14,277) (130,238) (4) (40) ----------- ------------- ----------- ------------- Net increase 145,145 1,296,061 22,133 211,494 =========== ============= =========== ============= DEVELOPING MARKETS ---------------------------------------------------------- Sold 153,271 980,500 339,521 2,182,850 Issued on reinvestment of dividends 1,956 11,289 - - Repurchased (132,675) (834,030) (597,013) (3,920,462) ----------- ------------- ----------- ------------- Net increase/(decrease) 22,552 157,759 (257,492) (1,737,612) =========== ============= =========== ============= EUROPEAN OPPORTUNITIES ---------------------------------------------------------- Sold 780,914 10,573,221 3,394,170 52,939,002 Issued on reinvestment of dividends - - - - Repurchased (1,490,408) (19,971,336) (4,303,990) (65,295,982) ----------- ------------- ----------- ------------- Net decrease (709,494) (9,398,115) (909,820) (12,356,980) =========== ============= =========== ============= GLOBAL ---------------------------------------------------------- Sold 216,701 1,830,792 924,949 8,866,381 Issued on reinvestment of dividends - - 1 11 Repurchased (370,983) (3,015,280) (1,053,590) (10,158,470) ----------- ------------- ----------- ------------- Net increase/(decrease) (154,282) (1,184,488) (128,640) (1,292,078) =========== ============= =========== ============= NATURAL RESOURCES ---------------------------------------------------------- Sold 1,993,532 25,084,977 936,310 10,453,386 Issued on reinvestment of dividends 7,271 84,787 9,409 100,865 Repurchased (1,214,071) (14,854,655) (819,044) (8,609,560) ----------- ------------- ----------- ------------- Net increase 786,732 10,315,109 126,675 1,944,691 =========== ============= =========== ============= SCIENCE & TECHNOLOGY ---------------------------------------------------------- Sold 324,013 2,683,766 599,749 11,715,938 Issued on reinvestment of dividends - - - - Repurchased (640,157) (5,506,239) (750,211) (13,732,949) ----------- ------------- ----------- ------------- Net decrease (316,144) (2,822,473) (150,462) (2,017,011) =========== ============= =========== ============= INTERNATIONAL ---------------------------------------------------------- Sold 4,966,625 90,325,388 11,954,096 272,548,928 Issued on reinvestment of dividends 941 15,328 4,608 116,485 Repurchased (13,872,768) (265,049,208) (17,756,706) (403,354,268) ----------- ------------- ----------- ------------- Net decrease (8,905,202) (174,708,492) (5,798,002) (130,688,855) =========== ============= =========== ============= SMALL COMPANIES ---------------------------------------------------------- Sold 51,397 396,014 409,940 4,536,884 Issued on reinvestment of dividends - - 341 2,724 Repurchased (255,122) (1,752,990) (677,820) (6,922,273) ----------- ------------- ----------- ------------- Net decrease (203,725) (1,356,976) (267,539) (2,382,665) =========== ============= =========== ============= (a) For the period 11/06/2002 to 12/31/2002 for Class I. 102 NOTES TO FINANCIAL STATEMENTS (continued) CLASS B CLASS C FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ 175,815 $ 1,595,946 91,196 $ 870,058 71,858 $ 632,564 3,540 $ 33,617 1,879 15,505 2,435 22,746 583 4,771 91 850 (16,729) (150,231) (3,398) (33,002) (21,597) (177,157) (513) (4,969) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ 160,965 1,461,220 90,233 859,802 50,844 460,178 3,118 29,498 ========== ============ ========== ============ ========== ============ ========== ============ 14,934 92,201 28,545 186,235 33,382 194,332 6,257 40,979 1,033 5,672 - - 276 1,522 - - (144,323) (846,611) (314,894) (1,924,934) (53,011) (297,295) (84,939) (521,143) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (128,356) (748,738) (286,349) (1,738,699) (19,353) (101,441) (78,682) (480,164) ========== ============ ========== ============ ========== ============ ========== ============ 280,262 3,645,449 269,607 4,333,792 231,057 3,089,090 508,103 8,429,668 - - 4,642 61,040 - - 2,609 34,419 (865,969) (11,547,539) (1,103,861) (15,702,774) (576,456) (7,785,181) (1,535,966) (23,423,729) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (585,707) (7,902,090) (829,612) (11,307,942) (345,399) (4,696,091) (1,025,254) (14,959,642) ========== ============ ========== ============ ========== ============ ========== ============ 21,391 152,554 34,789 302,014 183,237 1,200,074 4,580 38,984 - - - - - - - - (138,031) (974,380) (208,290) (1,861,683) (190,086) (1,253,073) (4,077) (36,183) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (116,640) (821,826) (173,501) (1,559,669) (6,849) (52,999) 503 2,801 ========== ============ ========== ============ ========== ============ ========== ============ 482,442 5,824,547 295,482 3,085,399 559,393 6,863,314 329,847 3,600,692 1 15 5,059 53,020 228 2,540 2,191 22,541 (195,981) (2,245,141) (146,873) (1,490,440) (255,224) (2,969,080) (239,652) (2,535,902) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ 286,462 3,579,421 153,668 1,647,979 304,397 3,896,774 92,386 1,087,331 ========== ============ ========== ============ ========== ============ ========== ============ 38,169 365,275 200,295 3,660,997 15,690 163,533 30,632 540,875 - - - - - - - - (368,020) (3,325,921) (357,536) (5,902,467) (97,853) (895,086) (175,152) (3,076,600) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (329,851) (2,960,646) (157,241) (2,241,470) (82,163) (731,553) (144,520) (2,535,725) ========== ============ ========== ============ ========== ============ ========== ============ 138,342 2,449,545 262,059 5,828,882 550,585 9,231,191 560,914 12,092,051 430 6,691 - - 60 928 - - (2,586,978) (46,942,617) (4,384,509) (96,144,129) (1,004,565) (17,550,924) (1,484,846) (32,348,284) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (2,448,206) (44,486,381) (4,122,450) (90,315,247) (453,920) (8,318,805) (923,932) (20,256,233) ========== ============ ========== ============ ========== ============ ========== ============ 7,897 54,949 139,814 1,584,972 8,483 60,812 84,341 956,399 - - 276 2,153 - - 110 866 (158,698) (1,149,461) (184,316) (1,656,269) (137,467) (952,799) (156,289) (1,498,935) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (150,801) (1,094,512) (44,226) (69,144) (128,984) (891,987) (71,838) (541,670) ========== ============ ========== ============ ========== ============ ========== ============ 103 NOTES TO FINANCIAL STATEMENTS ADVISOR CLASS FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 CUNDILL (A) SHARES AMOUNT SHARES AMOUNT ----------- ---------- ------------ ---------- ------------ Sold 655,616 $ 6,312,901 29,622 $ 294,347 Issued on reinvestment of dividends 1,581 13,076 3,128 28,995 Repurchased (576,628) (5,319,539) (5,933) (60,923) ---------- ------------ ---------- ------------ Net increase 80,569 1,006,438 26,817 262,419 ========== ============ ========== ============ DEVELOPING MARKETS ------------------------------------------------------------ Sold 1,755 11,179 2,696 17,117 Issued on reinvestment of dividends 44 254 - - Repurchased (6,508) (42,461) (7,536) (48,789) ---------- ------------ ---------- ------------ Net decrease (4,709) (31,028) (4,840) (31,672) ========== ============ ========== ============ EUROPEAN OPPORTUNITIES ------------------------------------------------------------ Sold 1,032,746 14,305,755 757,364 11,699,008 Issued on reinvestment of dividends - - 459 5,789 Repurchased (1,268,855) (17,294,714) (1,194,671) (17,913,376) ---------- ------------ ---------- ------------ Net increase/(decrease) (236,111) (2,988,959) (436,848) (6,208,579) ========== ============ ========== ============ GLOBAL ------------------------------------------------------------ Sold 680 5,318 4,763 49,819 Issued on reinvestment of dividends - - - - Repurchased (1,519) (11,820) (8,537) (79,975) ---------- ------------ ---------- ------------ Net decrease (839) (6,502) (3,774) (30,156) ========== ============ ========== ============ NATURAL RESOURCES ------------------------------------------------------------ Sold 612,019 7,969,518 234,198 2,522,781 Issued on reinvestment of dividends 296 3,428 439 4,689 Repurchased (604,618) (7,967,907) (194,697) (2,066,315) ---------- ------------ ---------- ------------ Net increase 7,697 5,039 39,940 461,155 ========== ============ ========== ============ SCIENCE & TECHNOLOGY ------------------------------------------------------------ Sold 7,828 76,027 14,893 260,748 Issued on reinvestment of dividends - - - - Repurchased (10,595) (112,522) (17,796) (299,368) ---------- ------------ ---------- ------------ Net decrease (2,767) (36,495) (2,903) (38,620) ========== ============ ========== ============ INTERNATIONAL ------------------------------------------------------------ Sold 397 7,865 77 1,566 Issued on reinvestment of dividends - - - - Repurchased (491) (10,027) - - ---------- ------------ ---------- ------------ Net increase/(decrease) (94) (2,162) 77 1,566 ========== ============ ========== ============ SMALL COMPANIES ------------------------------------------------------------ Sold 3,744 30,080 43,715 520,230 Issued on reinvestment of dividends - - 7 54 Repurchased (75,245) (569,810) (250,868) (2,316,861) ---------- ------------ ---------- ------------ Net decrease (71,501) (539,730) (207,146) (1,796,577) ========== ============ ========== ============ 104 NOTES TO FINANCIAL STATEMENTS (continued) CLASS 1 FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 SHARES AMOUNT SHARES AMOUNT ---------- ------------ -------- ------------ 4,967 $ 43,827 - $ - 46 379 - - - - - - ---------- ------------ -------- ------------ 5,013 44,206 - - ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ 5,773 89,250 - - - - 2 33 (4,496) (58,541) - - ---------- ------------ -------- ------------ 1,277 30,709 2 33 ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ 948,949 16,230,972 333,205 7,717,070 13 212 - - (1,688,192) (29,561,024) (801,870) (18,449,700) ---------- ------------ -------- ------------ (739,230) (13,329,840) (468,665) (10,732,630) ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ 105 NOTES TO FINANCIAL STATEMENTS CLASS A FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 INTERNATIONAL VALUE SHARES AMOUNT SHARES AMOUNT ------------------- ----------- ------------ ----------- ------------ Sold 1,425,171 $ 11,972,367 3,063,414 $ 31,144,482 Issued on reinvestment of dividends 2 15 1,680 14,902 Repurchased (1,852,546) (15,450,773) (3,751,978) (37,763,655) ----------- ------------ ----------- ------------ Net decrease (427,373) (3,478,391) (686,884) (6,604,271) =========== ============ =========== ============ PACIFIC OPPORTUNITIES ------------------------------------------------------------ Sold 1,019,807 6,632,147 1,098,100 7,131,564 Issued on reinvestment of dividends 4 25 1,307 8,415 Repurchased (1,063,853) (6,846,432) (1,389,038) (9,363,307) ----------- ------------ ----------- ------------ Net decrease (44,042) (214,260) (289,631) (2,223,328) =========== ============ =========== ============ GROWTH ------------------------------------------------------------ Sold 411,236 4,049,840 592,667 7,832,934 Issued on reinvestment of dividends - - 12,132 140,733 Repurchased (2,213,773) (21,280,039) (2,509,722) (32,218,227) ----------- ------------ ----------- ------------ Net decrease (1,802,537) (17,230,199) (1,904,923) (24,244,560) =========== ============ =========== ============ US BLUE CHIP ------------------------------------------------------------ Sold 720,972 6,367,977 833,406 8,155,869 Issued on reinvestment of dividends - - 22 235 Repurchased (1,451,618) (11,951,755) (2,130,483) (21,239,994) ----------- ------------ ----------- ------------ Net decrease (730,646) (5,583,778) (1,297,055) (13,083,890) =========== ============ =========== ============ EMERGING GROWTH ------------------------------------------------------------ Sold 253,447 4,065,017 871,969 23,179,206 Issued on reinvestment of dividends - - 96 2,773 Repurchased (1,122,518) (17,121,388) (1,292,259) (32,514,382) ----------- ------------ ----------- ------------ Net decrease (869,071) (13,056,371) (420,194) (9,332,403) =========== ============ =========== ============ BOND ------------------------------------------------------------ Sold 2,428,422 20,179,062 4,966,912 40,051,473 Issued on reinvestment of dividends 158,621 1,293,289 195,980 1,582,587 Repurchased (3,358,936) (27,463,024) (7,289,189) (58,628,687) ----------- ------------ ----------- ------------ Net decrease (771,893) (5,990,673) (2,126,297) (16,994,627) =========== ============ =========== ============ MONEY MARKET ------------------------------------------------------------ Sold 18,445,179 18,445,179 54,208,886 54,208,886 Issued on reinvestment of dividends 104,986 104,986 443,340 443,340 Repurchased (16,769,876) (16,769,876) (62,141,950) (62,141,950) ----------- ------------ ----------- ------------ Net increase/(decrease) 1,780,289 1,780,289 (7,489,724) (7,489,724) =========== ============ =========== ============ 106 NOTES TO FINANCIAL STATEMENTS (continued) CLASS B CLASS C FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ 287,436 $ 2,317,711 543,615 $ 5,251,194 528,192 $ 3,794,521 252,194 $ 2,573,097 - - 4,222 36,979 - - 1,509 13,215 (1,598,762) (12,992,787) (2,308,387) (21,681,265) (1,063,044) (8,264,435) (1,176,870) (11,480,661) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (1,311,326) (10,675,076) (1,760,550) (16,393,092) (534,852) (4,469,914) (923,167) (8,894,349) ========== ============ ========== ============ =========== ============ ========== ============ 586,472 3,598,141 32,021 226,228 235,902 1,391,308 30,974 223,503 - - 706 4,434 - - 162 1,015 (725,610) (4,595,703) (309,174) (1,992,916) (282,074) (1,724,416) (101,540) (685,580) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (139,138) (997,562) (276,447) (1,762,254) (46,172) (333,108) (70,404) (461,062) ========== ============ ========== ============ =========== ============ ========== ============ 94,997 885,213 209,874 2,581,690 86,266 678,725 16,220 196,718 - - 355 3,919 - - 25 267 (293,492) (2,717,339) (210,613) (2,546,518) (97,882) (796,519) (36,607) (416,302) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (198,495) (1,832,126) (384) 39,091 (11,616) (117,794) (20,362) (219,317) ========== ============ ========== ============ =========== ============ ========== ============ 314,507 2,688,872 432,235 4,111,397 22,903 195,806 80,026 780,897 - - 2 29 - - - - (1,099,072) (8,715,485) (644,289) (6,049,340) (81,786) (663,123) (240,991) (2,261,835) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (784,565) (6,026,613) (212,052) (1,937,914) (58,883) (467,317) (160,965) (1,480,938) ========== ============ ========== ============ =========== ============ ========== ============ 72,752 1,146,087 149,165 3,458,298 6,579 95,750 24,889 593,383 - - - - - - - - (620,327) (9,169,755) (675,205) (15,549,162) (110,606) (1,573,304) (127,619) (2,936,625) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (547,575) (8,023,668) (526,040) (12,090,864) (104,027) (1,477,554) (102,730) (2,343,242) ========== ============ ========== ============ =========== ============ ========== ============ 619,731 5,035,721 870,263 7,031,320 511,687 4,179,508 304,343 2,462,017 40,558 328,252 46,068 371,395 4,911 39,908 5,444 44,017 (972,491) (7,871,056) (1,067,501) (8,586,114) (523,042) (4,267,419) (383,769) (3,091,644) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (312,202) (2,507,083) (151,170) (1,183,399) (6,444) (48,003) (73,982) (585,610) ========== ============ ========== ============ =========== ============ ========== ============ 8,740,535 8,740,535 5,996,965 5,996,965 14,599,769 14,599,769 8,411,592 8,411,592 51,921 51,921 165,171 165,171 3,667 3,667 13,876 13,876 (9,368,012) (9,368,012) (5,353,798) (5,353,798) (14,309,666) (14,309,666) (9,881,478) (9,881,478) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (575,556) (575,556) 808,338 808,338 293,770 293,770 (1,456,010) (1,456,010) ========== ============ ========== ============ =========== ============ ========== ============ 107 NOTES TO FINANCIAL STATEMENTS ADVISOR CLASS FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 INTERNATIONAL VALUE SHARES AMOUNT SHARES AMOUNT ------------------- -------- ----------- -------- ---------- Sold 2,719 $ 23,457 10,877 $ 105,206 Issued on reinvestment of dividends - - 74 658 Repurchased (27,527) (235,520) (30,252) (290,488) -------- ----------- ------- --------- Net decrease (24,808) (212,063) (19,301) (184,624) ======== =========== ======= ========= PACIFIC OPPORTUNITIES ------------------------------------------------------------ Sold 413,311 2,523,230 16,889 114,000 Issued on reinvestment of dividends - - Repurchased (408,049) (2,522,605) (22,075) (140,101) -------- ----------- ------- --------- Net increase/(decrease) 5,262 625 (5,186) (26,101) ======== =========== ======= ========= GROWTH ------------------------------------------------------------ Sold 20,873 221,354 13,685 169,233 Issued on reinvestment of dividends - - 21 242 Repurchased (29,725) (299,703) (12,107) (148,106) -------- ----------- ------- --------- Net increase/(decrease) (8,852) (78,349) 1,599 21,369 ======== =========== ======= ========= US BLUE CHIP ------------------------------------------------------------ Sold 21,899 193,930 15,651 151,766 Issued on reinvestment of dividends - - - - Repurchased (10,547) (80,735) (29,636) (279,724) -------- ----------- ------- --------- Net increase/(decrease) 11,352 113,195 (13,985) (127,958) ======== =========== ======= ========= US EMERGING GROWTH ------------------------------------------------------------ Sold 5,514 87,021 12,721 298,722 Issued on reinvestment of dividends - - - - Repurchased (16,402) (233,999) (29,054) (685,415) -------- ----------- ------- --------- Net decrease (10,888) (146,978) (16,333) (386,693) ======== =========== ======= ========= BOND ------------------------------------------------------------ Sold 727,682 5,961,554 9,742 79,018 Issued on reinvestment of dividends 1,883 15,411 914 7,391 Repurchased (682,852) (5,605,809) (14,021) (113,136) -------- ----------- ------- --------- Net increase/(decrease) 46,713 371,156 (3,365) (26,727) ======== =========== ======= ========= 5. CHANGE IN INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP ("PwC") previously served as the independent accountants of Ivy Fund (the "Fund"). On December 16, 2002, PwC resigned as the Fund's independent accountants on the basis that it was no longer "independent" of the Fund within the meaning of the professional standards applicable to independent accountants. This loss of independence was caused by the change of control of the Fund's investment adviser, which took place on December 16, 2002. The decision to change independent accountants was recommended by the Audit Committee of the Fund's Board of Trustees and approved by the Board. PwC's reports on the Fund's financial statements for the two fiscal years prior to their resignation contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for those two periods and through PwC's resignation on December 16, 2002, there have been no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in its reports on the Fund's financial statements for such years. On December 17, 2002, the Audit Committee of the Fund's Board of Trustees recommended and the Board approved Deloitte & Touche LLP as the Fund's new independent accountants, effective as of December 16, 2002, for the Fund's fiscal year ending December 31, 2002. 108 INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Ivy Fund: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy Growth Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund, Ivy Bond Fund and Ivy Money Market Fund (collectively the "Funds") comprising Ivy Fund, as of December 31, 2002, and the related statements of operations, the statements of changes in net assets and the financial highlights for the fiscal year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial statements and the financial highlights of the Funds for each of the periods presented in the four-year period ended December 31, 2001 were audited by other auditors whose report, dated February 8, 2002, expressed an unqualified opinion on those statements and financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of each of the respective Funds comprising Ivy Fund as of December 31, 2002, the results of their operations, the changes in their net assets and their financial highlights for the fiscal year then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri February 7, 2003 109 OFFICERS AND NON-INDEPENDENT TRUSTEES The address for each Trustee and Executive Officer in the following tables is 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. Each Trustee and Officer serves an indefinite term, until he or she dies, resigns or becomes disqualified. The non-Independent Trustees (as defined below) and Executive Officers of the Trust and their principal occupations during the past five years are: TERM OF OFFICE AND PRINCIPAL TOTAL POSITION(S) LENGTH OF OCCUPATION(S) NUMBER OF HELD WITH TIME DURING PAST 5 IVY FUNDS NAME AND AGE TRUST SERVED YEARS OVERSEEN Keith A. Tucker* (58) Trustee and Chairman Trustee Chairman of the Board, Director and 16 since CEO of Waddell & Reed; Chairman of the December 16, Board of Waddell & Reed, Inc. ("WRI") 2002 (underwriter); Chairman of the Board and Director of Waddell & Reed Investment Management Co. ("WRIMCO"); Chairman of the Board and Director of Waddell & Reed Services Co.; President and CEO of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Waddell & Reed Development, Inc.; Chairman of the Board of Waddell & Reed Distributors, Inc. Henry J. Herrmann* (60) Trustee and Trustee Chairman of the Board, CEO and 16 President since President of Waddell & Reed Ivy December 16, Investment Company ("WRIICO"); 2002 President, Chief Investment Officer and Director of Waddell & Reed; President and CEO of WRIMCO; Chief Investment Officer of WRIMCO; Chief Investment Officer of Waddell & Reed Financial Services, Inc.; Executive Vice President of Waddell & Reed Financial Services, Inc.; formerly, Chairman of the Board of Austin, Calvert & Flavin, Inc. Kristen A. Richards* (35) Secretary and Vice Appointed Vice President, Associate General 16 President December 17, Counsel and Chief Compliance Officer 2002 of WRIICO and WRIMCO; Vice President, Secretary and Associate General Counsel of each of the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and W&R InvestEd Portfolios, Inc.; formerly Assistant Secretary of each of those funds; formerly, Compliance Officer of WRIMCO. Beverly J. Yanowitch* Treasurer 1 year Senior Vice President, Chief Financial 16 (52) Officer and Treasurer of WRIICO and Ivy Services Inc.; Senior Vice President, Treasurer and Director, IMDI; formerly, Vice President, Chief Financial Officer and Treasurer of MIMI. OTHER DIRECTORSHIPS NAME AND AGE HELD Keith A. Tucker* (58) Chairman of the Board and Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Chairman of the Board and Director of W&R Funds, Inc. (12 portfolios overseen); Chairman of the Board and Director of W&R Target Funds, Inc. (12 portfolios overseen); Chairman of the Board and Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Henry J. Herrmann* (60) Chairman of the Board and Director, Ivy Mackenzie Services Corporation; Director of WRI; Director of Waddell & Reed Development, Inc.; Director of Waddell & Reed Services Co.; Director of Austin Calvert & Flavin, Inc.; Director and President of Waddell & Reed Advisors Funds (20 portfolios overseen); Director and President of W&R Funds, Inc. (12 portfolios overseen); Director and President of W&R Target Funds, Inc. (12 portfolios overseen); Director and President of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Kristen A. Richards* (35) None. Beverly J. Yanowitch* None. (52) * Trustees considered by the Trust and its counsel to be "interested persons" (as defined in the 1940 Act) of the Funds or of their investment manager because of their employment by Waddell & Reed or its subsidiaries. 110 DISINTERESTED TRUSTEES The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees") and their principal occupations during the past five years are: TERM OF OFFICE AND PRINCIPAL TOTAL POSITION(S) LENGTH OF OCCUPATION(S) NUMBER OF HELD WITH TIME DURING PAST 5 IVY FUNDS NAME AND AGE TRUST SERVED YEARS OVERSEEN Jarold W. Boettcher (62) Trustee Trustee President of Boettcher Enterprises, Inc. 16 since (diversified agricultural products and December 16, services); President of Boettcher Supply, 2002 Inc. (electrical and plumbing supplies distributor). James D. Gressett (52) Trustee Trustee CEO of PacPizza, Inc.; Secretary of 16 since Street Homes, LLP; formerly, President of December 16, Alien, Inc. (real estate development). 2002 Joseph Harroz, Jr. (35) Trustee Trustee General Counsel, University of Oklahoma, 16 since Cameron University and Rogers State December 16, University; University-wide Vice 2002 President of the University of Oklahoma; Adjunct Professor of Law, University of Oklahoma College of Law; Managing Member, Harroz Investment, LLC (commercial real estate); Managing Member, JHJ Investments, LLC (commercial real estate). Glendon E. Johnson, Jr. (51) Trustee Trustee Of Counsel, Lee & Smith, PC (law firm); 16 since Member/Manager, Castle Valley Ranches, December 16, LLC, formerly Partner, Kelley, Drye & 2002 Warren LLP (law firm). Eleanor B. Schwartz (65) Trustee Trustee Professor of Business Administration, 16 since University of Missouri -- Kansas City; December 16, formerly, Chancellor of University of 2002 Missouri -- Kansas City. Michael G. Smith (58) Trustee Trustee Associated with Graue Mill Partners, LLC; 16 since formerly, Managing December 16, Director -- Institutional Sales, Merrill 2002 Lynch. Edward M. Tighe (60) Trustee 4 years Chairman, CEO and Director of JBE 16 Technology Group, Inc. (telecommunications and computer network consulting); President of Global Mutual Fund Services; President and CEO of Global Technology. OTHER DIRECTORSHIPS NAME AND AGE HELD Jarold W. Boettcher (62) Director of Guaranty State Bank & Trust Co.; Director of Guaranty, Inc. James D. Gressett (52) Director of Collins Financial Services. Joseph Harroz, Jr. (35) Co-Lead Independent Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Co-Lead Independent Director of W&R Target Funds, Inc. (12 portfolios overseen); Co-Lead Independent Director of W&R Funds, Inc. (12 portfolios overseen); Co-Lead Independent Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Glendon E. Johnson, Jr. (51) None. Eleanor B. Schwartz (65) Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Director of W&R Target Funds, Inc. (12 portfolios overseen); Director of W&R Funds, Inc. (12 portfolios overseen); Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Michael G. Smith (58) None. Edward M. Tighe (60) Director of Hansberger Institutional Funds (2 portfolios overseen); Director of Asgard Holding, LLC. Each fund's statement of additional information ("SAI") contains additional information about the Trustees and is available without charge, upon request, by calling 1-800-456-5111. 111 SHAREHOLDER MEETING RESULTS (unaudited) On December 10, 2002 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: For shareholders of all Funds, except for Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management and Investment Advisory Agreement between the Trust, on behalf of the Funds, and Ivy Management, Inc. ("IMI"); and FOR AGAINST ABSTAIN ------------------------------------------------------------------------ 51,498,803.247 1,377,315.682 1,493,850.977 ------------------------------------------------------------------------ PROPOSAL 2: For shareholders of Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management Agreement between the Trust, on behalf of the Fund, and IMI; and --------------------------------------------------------- FOR AGAINST ABSTAIN 2,121,469.663 27,123.541 10,068.003 --------------------------------------------------------- PROPOSAL 3A: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Henderson Global Investors (North America) Inc. ("HGINA"); and ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,488,037.381 89,305.745 85,262.146 ------------------------------------------------------------ PROPOSAL 3B: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between HGINA and Henderson Investment Management Limited ("Henderson"); and ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,489,481.210 93,343.546 80,135.834 ------------------------------------------------------------ PROPOSAL 4: For shareholders of Ivy Cundill Global Value Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Peter Cundill & Associates, Inc. ("Cundill"); and ------------------------------------------------------------ FOR AGAINST ABSTAIN 251,879.738 7,112.670 7,527.179 ------------------------------------------------------------ PROPOSAL 5: For shareholders of all Funds, to approve or disapprove the election of eight nominees to serve as Trustees on the Board of Trustees. ----------------------------------------------------------------------------- NOMINEE: FOR AGAINST KEITH A. TUCKER 54,459,082.827 2,069,192.008 HENRY J. HERRMANN 54,455,836.913 2,073,536.552 JAMES D. GRESSETT 54,480,456.334 2,047,818.501 JAROLD W. BOETTCHER 54,484,155.922 2,044,118.913 MICHAEL G. SMITH 54,473,248.468 2,052,569.367 JOSEPH HARROZ, JR. 53,859,972.525 2,051,162.062 ELEANOR B. SCHWARTZ 53,853,424.194 2,057,551.889 GLENDON E. JOHNSON, JR. 53,901,560.595 2,008,266.240 ----------------------------------------------------------------------------- Edward M. Tighe, who was elected by shareholders, continued his term of office after the meeting. 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. Annual Report December 31, 2002 Ivy International Growth Fund IVY INTERNATIONAL GROWTH FUND The Fund's goal: to provide long-term capital growth by investing at least 65% of its assets in equity securities principally traded in European, Pacific and Latin American markets. Ivy International Growth Fund was managed by Moira McLachlan and the Ivy International Equities Team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy International Growth Fund on December 17th, 2002. The Fund was liquidated in February, 2003. LIPPER CATEGORY International "Market conditions were extremely volatile in 2002, continuing a trend seen in the previous two years." Q: Moira, how did Ivy International Growth Fund perform in 2002? A: For 2002, Ivy International Growth Fund returned -28.46%.* The Fund underperformed its benchmark, the MSCI EAFE Growth Index, which returned -16.02%, and its peer group (as measured by the Lipper International Funds average), which returned -16.67%. Q: How were market conditions? A: Market conditions were extremely volatile in 2002, continuing a trend seen in the previous two years. Fears of a double-dip recession and global deflation contributed to sharp declines periodically interspersed with equally sharp rallies. Despite ample global liquidity and much-improved valuations, sluggish economic growth, poor corporate profits and fears about the possible fallout from potential military action in Iraq all contributed to a significant drop in international markets over the course of the year. Q: What factors affected performance? A: Two growth-oriented sectors were particularly hard hit by market volatility: information technology, which was affected by the slowdown in corporate spending, and consumer electronics, which suffered from downward pressure on pricing. Unfortunately, the Fund was overweight in both of these sectors, and this had a significantly negative effect on performance. Holdings in the consumer electronics area suffered the worst declines and had the single largest negative effect. The Fund was also negatively impacted by lack of exposure to traditional defensive sectors such as consumer staples and utilities. Minimal exposure to energy, which was one of the few bright spots last year as oil stocks and oil prices rallied in response to the Iraq situation, also hurt performance. And while the Fund had some exposure to basic materials, a sector that did well, it was not enough to offset the losses experienced in consumer electronics and information technology. On the positive side, an underweight in Sweden and in the financials sector helped performance. The latter helped the Fund avoid dramatic declines in European insurers and banks. Performance cited is for Advisor Class shares at net asset value. (The Fund has no A, B or C shares outstanding. Advisor Class shares do not carry a sales charge.) The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Average annual total returns For the periods ended 12/31/02 1 5 10 Since Year Years Years Inception A Shares w/Reimb. & 5.75% sales charge N/A N/A N/A N/A w/o Reimb. & 5.75% sales charge N/A N/A N/A N/A B Shares w/Reimb. & w/ 5.00% CDSC N/A N/A N/A N/A w/Reimb. & w/o 5.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/ 5.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/o 5.00% CDSC N/A N/A N/A N/A C Shares w/Reimb. & w/ 1.00% CDSC N/A N/A N/A N/A w/Reimb. & w/o 1.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/ 1.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/o 1.00% CDSC N/A N/A N/A N/A Advisor Shares w/Reimb. (28.46%) N/A N/A (27.25%) w/o Reimb. (45.77%) N/A N/A (44.35%) CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Advisor Class commenced operations December 29, 2000. As of December 31, 2001, the Fund had no A, B or C shares outstanding. 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 International Growth Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. Performance overview Performance Comparison of the Fund Since Inception (12/00) of a $10,000 Investment (Advisor Class Shares) IVY INTERNATIONAL MSC I GROWTH FUND EAFE GROWTH INDEX NO SALES CHARGES ON ADVISOR SHARES 29-Dec-2000 10000 10000 30-Jan-2001 10230 9978 28-Feb-2001 9191 8961 31-Mar-2001 8202 8325 30-Apr-2001 8751 8890 31-May-2001 8322 8527 30-Jun-2001 7812 8114 31-Jul-2001 7682 7939 31-Aug-2001 7403 7577 30-Sep-2001 6663 6860 31-Oct-2001 6923 7132 30-Nov-2001 7273 7499 31-Dec-2001 7398 7542 31-Jan-2002 6948 7135 28-Feb-2002 6887 7232 31-Mar-2002 7398 7506 30-Apr-2002 7112 7546 31-May-2002 6866 7561 30-Jun-2002 6539 7366 31-Jul-2002 5812 6581 31-Aug-2002 5710 6530 30-Sep-2002 5075 5962 31-Oct-2002 5413 6299 30-Nov-2002 5853 6484 31-Dec-2002 5292 6334 The Morgan Stanley Capital International (MSCI) EAFE Growth 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. Past performance does not guarantee future results.The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Investments 1. United Kingdom 28% 2. Japan 17% 3. Switzerland 12% 4. Netherlands 8% 5. Germany 6% 6. France 5% 7. Spain 4% 8. Italy 4% 9. South Korea 4% 10. Finland 3% 11. Brazil 3% 12. Norway 3% 13. Taiwan 2% 14. Israel 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Consumer Discretionary 20% 2. Information Technology 15% 3. Healthcare 14% 4. Telecommunication Services 11% 5. Consumer Staples 11% 6. Financials 10% 7. Industrials 10% 8. Materials 6% 9. Energy 3% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Vodafone AirTouch plc 6.1% 2. Nestle SA 5.6% 3. GlaxoSmithKline plc 4.5% 4. Diageo plc 4.2% 5. Rio Tinto plc 4.0% 6. NTT DoCoMo, Inc. 3.5% 7. WPP Group plc 3.2% 8. Nokia Oyj 3.1% 9. Nomura Holdings, Inc. 3.0% 10. Nissan Motor Co., Ltd. 2.9% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 SHARES VALUE EQUITY SECURITIES - 93.8% ----------------------------------------------------------- EUROPE - 68.5% ----------------------------------------------------------- FINLAND - 3.1% Nokia Oyj 518 $ 8,235 ------------- FRANCE - 5.1% Aventis SA 73 3,968 STMicroelectronics N.V. 110 2,156 Thomson Multimedia (a) 440 7,508 ------------- 13,632 ------------- GERMANY - 5.9% Fresenius AG 80 2,997 Hugo Boss AG 300 3,025 Medion AG 200 6,926 Merck KGaA 100 2,635 ------------- 15,583 ------------- ITALY - 3.7% IntesaBci S.p.A. 2,000 4,218 Mondadori (Arnoldo) Editora S.p.A. 900 5,572 ------------- 9,790 ------------- NETHERLANDS - 7.1% ING Groep NV 203 3,438 Koninklijke (Royal) Philips Electronicas NV 373 6,537 Koninklijke Ahold NV 190 2,412 TPG NV 400 6,485 ------------- 18,872 ------------- NORWAY - 2.4% Norsk Hydro ASA 140 6,275 ------------- SPAIN - 3.9% Amadeus Global Travel Distribution S.A. 1,493 6,157 Prosegur, Compania de Seguridad SA 422 4,296 ------------- 10,453 ------------- SWITZERLAND - 11.5% Credit Suisse Group 140 3,038 Nestle SA 70 14,833 Novartis AG 140 5,108 UBS AG 155 7,533 ------------- 30,512 ------------- UNITED KINGDOM - 25.8% AstraZeneca PLC 200 7,125 BT Group plc 1,000 3,139 Diageo plc 1,019 11,082 GlaxoSmithKline plc 621 11,917 Rio Tinto plc 525 10,472 Vodafone AirTouch plc 8,871 16,210 WPP Group plc 1,100 8,359 ------------- 68,304 ------------- FAR EAST - 21.1% ----------------------------------------------------------- JAPAN - 16.1% Mitsubishi Electric Corporation 1,000 2,309 Nintendo Co., Ltd. 70 6,542 Nissan Motor Co., Ltd. 1,000 7,803 Nomura Holdings, Inc. 700 7,869 NTT DoCoMo, Inc. 5 9,227 Sharp Corporation 500 4,748 Sony Corporation 100 4,180 ------------- 42,678 ------------- SOUTH KOREA - 3.5% POSCO 40 3,980 Samsung Electronics 20 5,295 ------------- 9,275 ------------- TAIWAN - 1.5% Taiwan Semiconductor Manufacturing Company (a) 3,300 4,043 ------------- LATIN AMERICA - 2.7% ----------------------------------------------------------- BRAZIL - 2.7% Embraer Brasileira de Aeronautica S.A. (Embraer) 456 7,250 ------------- MIDDLE EAST - 1.5% ----------------------------------------------------------- ISRAEL - 1.5% Check Point Software Technologies Ltd. (a) 300 3,891 ------------- Total Investments - 93.8% $ 248,793 (Cost - $310,578) (Cost on Federal income tax basis - $319,556) Other Assets, Less Liabilities - 6.2% 16,449 ------------- Net Assets - 100.0% $ 265,242 ============= Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 5,803 Gross unrealized depreciation (67,588) ------------- Net unrealized depreciation for financial statement purposes (61,785) Less: tax basis adjustments (8,978) ------------- Net unrealized depreciation for Federal income tax purposes $ (70,763) ============= Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $175,036 and $168,225, respectively, for the year ended December 31, 2002. (a) Non-income producing security. The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Statement of Assets and Liabilities December 31, 2002 ASSETS Investments, at value (identified cost - $310,578 ) .......... $ 248,793 Cash ......................................................... 35,482 Receivables Dividends and Interest ..................................... 663 Other assets ................................................. 15 --------- Total assets ............................................... 284,953 --------- LIABILITIES Payables Investments purchased ..................................... 336 Management fee ............................................ 109 Transfer agent fee ........................................ 6 Other payables to related parties ......................... 601 Accrued expenses ............................................. 18,659 --------- Total liabilities .......................................... 19,711 --------- NET ASSETS ................................................... $ 265,242 ========= ADVISOR CLASS Net asset value, offering price and redemption price per share ($265,242/51,692 shares outstanding) ....................... $ 5.13 ========= NET ASSETS CONSIST OF Capital paid-in ............................................ $ 522,748 Accumulated net realized loss on investments and foreign currency transactions ............................ (195,738) Accumulated net investment loss ............................ (315) Net unrealized depreciation on investments and foreign currency transactions ............................ (61,453) --------- NET ASSETS ................................................... $ 265,242 ========= The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Statement of Operations For the Year Ended December 31, 2002 INVESTMENT INCOME Dividends, net of $709 foreign taxes withheld ............... $ 5,014 Interest ................................................... 320 --------- 5,334 --------- EXPENSES Management fee ............................................. 3,155 Transfer agent ............................................. 294 Administrative services fee ................................ 315 Custodian fees ............................................. 20,546 Auditing and accounting fees ............................... 16,694 Fund accounting ............................................ 15,129 Trustees' fees ............................................. 4,385 Legal ...................................................... 25,417 Other ...................................................... 150 --------- 86,085 Expenses reimbursement by Manager .......................... (81,332) --------- Net expenses ............................................. 4,753 --------- NET INVESTMENT INCOME ........................................ 581 --------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss on investments and foreign currency transactions ........................... (34,736) Net change in unrealized depreciation on investments and foreign currency transactions ........................ (71,254) --------- Net loss on investments ................................. (105,990) --------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................ $(105,409) ========= The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Statement of Changes in Net Assets For the For the year ended year ended ----------------- ----------------- December 31, 2002 December 31, 2001 ----------------- ----------------- DECREASE IN NET ASSETS Operations Net investment income ................................. $ 581 $ 821 Net realized loss on investments and foreign currency transactions ....... (34,736) (165,918) Net change in unrealized (depreciation) appreciation on investments and foreign currency transactions ....... (71,254) 9,299 --------- --------- Net decrease resulting from operations ........... (105,409) (155,798) --------- --------- Advisor Class distributions Dividends from net investment income .................. (2,148) (8,620) --------- --------- Total distributions to Advisor Class shareholders (2,148) (8,620) --------- --------- Fund share transactions (Note 3) Advisor Class ......................................... 2,148 34,608 --------- --------- Net increase resulting from Fund share transactions ........................ 2,148 34,608 --------- --------- TOTAL DECREASE IN NET ASSETS ............................ (105,409) (129,810) NET ASSETS AT BEGINNING OF PERIOD ....................... 370,651 500,461 --------- --------- NET ASSETS AT END OF PERIOD ............................. 265,242 370,651 ========= ========= UNDISTRIBUTED NET INVESTMENT INCOME ..................... $ -- $ 1,477 ========= ========= The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Financial Highlights FOR THE PERIOD FOR THE YEAR FOR THE YEAR DECEMBER 29, 2000 ADVISOR CLASS ENDED ENDED (COMMENCEMENT) DECEMBER 31, DECEMBER 31, TO DECEMBER 31, SELECTED PER SHARE DATA 2002 2001 2000 ------------ ------------- ----------------- Net asset value, beginning of period .................. $ 7.23 $ 10.01 $ 10.00 ------- ------- ------- Income from investment operations Net investment income(a) ............................ 0.01 0.02 -- Net (loss) gain on securities (both realized and unrealized) .......................... (2.07) (2.63) 0.01 ------- ------- ------- Total from investment operations .................... (2.06) (2.61) 0.01 ------- ------- ------- Less distributions Dividends From net investment income ........................ 0.04 0.17 -- ------- ------- ------- Total distributions ............................. 0.04 0.17 -- ------- ------- ------- Net asset value, end of period ........................ $ 5.13 $ 7.23 $ 10.01 ======= ======= ======= Total return (%)(b) ................................... (28.46) (26.02) 0.10 Ratios and Supplemental Data Net assets, end of period (in thousands) .............. $ 265 $ 371 $ 500 Ratio of expenses to average net assets (%) With expense reimbursement (%) ...................... 1.50 1.50 1.50 (c) Without expense reimbursement (%) ................... 27.30 26.08 443.30 (c) Ratio of net investment income (loss) to average net assets (%)(a) ........................... 0.18 0.16 (1.50) c) Portfolio turnover rate (%) ........................... 55 252 -- (a) Net investment income is net of expenses reimbursed by Manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. The accompanying notes are an integral part of the financial statements. IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 Ivy International Growth 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, Class I and Advisor Class are authorized. As of December 31, 2002, only Advisor Class shares have been issued. 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 accounting principles generally accepted in the United States of America. 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 market on which the security is traded most extensively. If there were no sales on the market on which the security is traded most extensively and the security is traded on more than one market, or on one or more exchanges in the over-the-counter market, the market 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 market 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 calculated mean between the last bid and the last 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, 2002, there were no Board valued securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are accounted for on the trade date. Dividend income, net of foreign taxes withheld, 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. 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, 2002, the interest rate was 0.60%. 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 IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. Because Federal income tax regulations differ from accounting principles generally accepted in the United States of America, income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. These differences are primarily attributed to wash sales and non-deductible deferred offering costs. Accordingly, the character of distributions for tax purposes differ from those reflected in the accompanying financial statements. Distributions of $2,148 during the year ended December 31, 2002 were characterized as ordinary income for tax purposes. The net unrealized depreciation for U.S. Federal income tax purposes at December 31, 2002 was as follows: Unrealized appreciation $ 5,803 Unrealized depreciation (76,566) ---------- Net unrealized depreciation (70,763) ========== There was no undistributed ordinary income at December 31, 2002 for U.S. Federal income tax purposes. The Fund earned $5,723 in foreign source dividends that were subject to $709 in foreign withholding tax. The Fund intends to elect to pass through to the shareholders their proportionate share of such taxes. Shareholders may report their share of foreign taxes paid as either a tax credit or itemized deduction. The Fund has a net tax-basis capital loss carryover of approximately $177,000 as of December 31, 2002, 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. Approximately $123,000 of the carryover expires in 2009 and approximately $54,000 expires in 2010. DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment income and realized 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 IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 separate component of Net realized and unrealized gain (loss) on investment transactions. Foreign transactions may involve risks not typically associated with domestic transactions including, but not limited to, unanticipated movements in exchange rates, the degree of government supervision and regulation of security markets and the possibility of political and economic instability. 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. 2. RELATED PARTIES Until December 31, 2002, Ivy Management, Inc. ("IMI") provided business management services and was the Investment Adviser to the Fund. Effective December 16, 2002, Waddell & Reed Financial, Inc. ("Waddell & Reed"), a U.S. mutual fund firm, completed its acquisition of the entire operations of Mackenzie Investment Management Inc. ("MIMI"), of which IMI is a wholly owned subsidiary. At this time, Ivy Acquisition Corporation ("IAC") was formed as a registered investment adviser. On December 31, 2002, IMI merged into IAC and IAC changed its name to Waddell & Reed Ivy Investment Company ("WRIICO"), the Fund's current investment adviser. For its services, WRIICO receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. For the year ended December 31, 2002, WRIICO limited the Fund's total operating expenses (excluding 12b-1 fees and certain other expenses) to an annual rate of 1.50% of the Fund's average net assets. MIMI provided certain administrative, accounting and pricing services for the Fund. Effective December 17, 2002, IAC, now WRIICO, assumed all of MIMI's duties under the Fund Accounting Services Agreement and the Administrative Services Agreement. For those services, the Fund pays WRIICO fees plus certain out-of-pocket expenses. Such fees and expenses are reflected as Fund accounting and Administrative services fee in the Fund's Statement of Operations. At December 31, 2002, WRIICO owned approximately 99% of the Fund's shares outstanding. 3. FUND SHARE TRANSACTIONS Fund share transactions for Advisor Class were as follows: IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 ---------------------- --------------------------- ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT ------ ------- ------- --------- Sold $ -- 24,567 $ 200,498 Issued on reinvestment of dividends 419 2,148 1,216 8,620 Repurchased -- -- (24,510) (174,510) --- ------- ------- --------- Net increase 419 $ 2,148 1,273 $ 34,608 === ======= ======= ========= 4. GEOGRAPHIC RISK FACTORS There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political and economic developments and the possible imposition of currency exchange restrictions or other foreign laws or restrictions. 5. CHANGE IN INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP ("PwC") previously served as the independent accountants of the Fund. On December 16, 2002, PwC resigned as the Fund's independent accountants on the basis that it was no longer "independent" of the Fund within the meaning of the professional standards applicable to independent accountants. This loss of independence was caused by the change of control of the Fund's investment adviser, which took place on December 16, 2002. The decision to change accountants was recommended by the audit committee of the Fund's Board of Trustees and approved by the Board. PwC's reports on the Fund's financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for the Fund's two most recent fiscal years and through PwC's resignation on December 16, 2002, there have been no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in its reports on the Fund's financial statements for such years. On December 17, 2002, the audit committee of the Fund's Board of Trustees recommended and the Board approved Deloitte & Touche LLP as the Fund's new independent accountants, effective as of December 16, 2002, for the Fund's fiscal year ending December 31, 2002. INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Ivy International Growth Fund: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ivy International Growth Fund (the "Fund") as of December 31, 2002, and the related statement of operations, statement of changes in net assets and the financial highlights for the fiscal year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements and the financial highlights of the Fund for each of the periods presented in the two-year period ended December 31, 2001 were audited by other auditors whose report, dated February 8, 2002, expressed an unqualified opinion on those statements and financial highlights. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Ivy International Growth Fund as of December 31, 2002, the results of its operations, the changes in its net assets and the financial highlights for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri February 7, 2003 OFFICERS AND NON-INDEPENDENT TRUSTEES The address for each Trustee and Executive Officer in the following tables is 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. Each Trustee and Officer serves an indefinite term, until he or she dies, resigns or becomes disqualified. The non-Independent Trustees (as defined below) and Executive Officers of the Trust and their principal occupations during the past five years are: Position(s) Term of Office Held and Length of Name and Age with Trust Time Served ------------ ----------- ----------------------- Keith A. Tucker* Trustee and Trustee since (58) Chairman December 16, 2002 Henry J. Herrmann* Trustee and Trustee since (60) President December 16, 2002 Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held ------------ ----------------------- --------- ------------ Keith A. Tucker* Chairman of the Board, Director and CEO of 16 Chairman of the Board and Director (58) Waddell & Reed; Chairman of the Board of of Waddell & Reed Advisors Funds Waddell & Reed, Inc. ("WRI") (underwriter); (20 portfolios overseen); Chairman Chairman of the Board and Director of of the Board and Director of W&R Waddell & Reed Investment Management Co. Funds, Inc. (12 portfolios ("WRIMCO"); Chairman of the Board and overseen); Chairman of the Board Director of Waddell & Reed Services Co.; and Director of W&R Target Funds, President and CEO of Waddell & Reed Inc. (12 portfolios overseen); Financial Services, Inc.; Chairman of the Chairman of the Board and Director Board of Waddell & Reed Development, Inc.; of Waddell & Reed InvestEd Chairman of the Board of Waddell & Reed Portfolios, Inc. (3 portfolios Distributors, Inc. overseen). Henry J. Herrmann* Chairman of the Board, CEO and President of 16 Chairman of the Board and Director, (60) IMI and IAC; President, Chief Investment Ivy Mackenzie Services Corporation; Officer and Director of Waddell & Reed; Director of WRI; Director of Waddell President and CEO of WRIMCO; Chief & Reed Development, Inc.; Director of Investment Officer of WRIMCO; Chief Waddell & Reed Services Co.; Director Investment Officer of Waddell & Reed of Austin Calvert & Flavin, Inc.; Financial Services, Inc.; Executive Vice Director and President of Waddell & President of Waddell & Reed Financial Reed Advisors Funds (20 portfolios Services, Inc.; formerly, Chairman of the overseen); Director and President of Board of Austin, Calvert & Flavin, Inc. W&R Funds, Inc. (12 portfolios overseen); Director and President of W&R Target Funds, Inc. (12 portfolios overseen); Director and President of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Position(s) Term of Office Held and Length of Name and Age with Trust Time Served ------------ ----------- ----------------------- Kristen A. Richards Secretary and Appointed December 17, (35) Vice President 2002 Beverly J. Yanowitch Treasurer 1 year (52) Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held ------------ ----------------------- --------- ------------ Kristen A. Richards Vice President, Associate General Counsel 16 None. (35) and Chief Compliance Officer of IAC, IMI and WRIMCO; Vice President, Secretary and Associate General Counsel of each of the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and W&R Invested Portfolios, Inc.; formerly Assistant Secretary of each of those funds; formerly, Compliance Officer of WRIMCO. Beverly J. Yanowitch Senior Vice President, Chief Financial 16 None. (52) Officer and Treasurer of WRIICO and Ivy Services Inc.; Senior Vice President, Treasurer and Director, IMDI; formerly, Vice President, Chief Financial Officer and Treasurer of MIMI. --------- * Trustees considered by the Trust and its counsel to be "interested persons" (as defined in the 1940 Act) of the Funds or of their investment manager because of their employment by Waddell & Reed or its subsidiaries. DISINTERESTED TRUSTEES The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees") and their principal occupations during the past five years are: Position(s) Term of Office Held and Length of Name and Age with Trust Time Served ------------ ----------- ----------------- Jarold W. Boettcher Trustee Trustee since (62) December 16, 2002 James D. Gressett Trustee Trustee since (52) December 16, 2002 Joseph Harroz, Jr. Trustee Trustee since (35) December 16, 2002 Glendon E. Johnson, Jr. Trustee Trustee since (51) December 16, 2002 Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held ------------ ----------------------- --------- ------------ Jarold W. Boettcher President of Boettcher Enterprises, Inc. 16 Director of Guaranty State Bank (62) (diversified agricultural products and & Trust Co.; Director of services); President of Boettcher Supply, Guaranty, Inc. Inc. (electrical and plumbing supplies distributor). James D. Gressett CEO of PacPizza, Inc.; Secretary of Street 16 Director of Collins Financial (52) Homes, LLP; formerly, President of Alien, Services. Inc. (real estate development). Joseph Harroz, Jr. General Counsel, University of Oklahoma, 16 Co-Lead Independent Director of (35) Cameron University and Rogers State Waddell & Reed Advisors Funds University; University-wide Vice President (20 portfolios overseen); of the University of Oklahoma; Adjunct Co-Lead Independent Director of Professor of Law, University of Oklahoma W&R Target Funds, Inc. (12 College of Law; Managing Member, Harroz portfolios overseen); Co-Lead Investment, LLC (commercial real estate); Independent Director of W&R Managing Member, JHJ Investments, LLC Funds, Inc. (12 portfolios (commercial real estate). overseen); Co-Lead Independent Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Glendon E. Johnson, Jr. Of Counsel, Lee & Smith, PC (law firm); 16 None. (51) Member/Manager, Castle Valley Ranches, LLC, formerly Partner, Kelley, Drye & Warren LLP (law firm). Position(s) Term of Office Held and Length of Name and Age with Trust Time Served ------------ ----------- ----------------- Eleanor B. Schwartz Trustee Trustee since (65) December 16, 2002 Michael G. Smith Trustee Trustee since December (58) 16, 2002 Edward M. Tighe Trustee 4 years (60) Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held ------------ ----------------------- --------- ------------ Eleanor B. Schwartz Professor of Business Administration, 16 Director of Waddell & Reed (65) University of Missouri--Kansas City; Advisors Funds (20 portfolios formerly, Chancellor of University of overseen); Director of W&R Missouri--Kansas City. Target Funds, Inc. (12 portfolios overseen); Director of W&R Funds, Inc. (12 portfolios overseen); Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Michael G. Smith Associated with Graue Mill Partners, LLC; 16 None. (58) formerly, Managing Director--Institutional Sales, Merrill Lynch. Edward M. Tighe Chairman, CEO and Director of JBE 16 Director of Hansberger (60) Technology Group, Inc. (telecommunications Institutional Funds (2 and computer network consulting); President portfolios overseen); Director of Global Mutual Fund Services.; President of Asgard Holding, LLC. and CEO of Global Technology. Each fund's statement of additional information ("SAI") contains additional information about the Trustees and is available without charge, upon request, by calling 1-800-456-5111. SHAREHOLDER MEETING RESULTS (unaudited) On December 10, 2002 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: For shareholders of all Funds, except for Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management and Investment Advisory Agreement between the Trust, on behalf of the Funds, and Ivy Management, Inc. ("IMI"); and FOR AGAINST ABSTAIN ------------------------------------------------------------------------ 51,498,803.247 1,377,315.682 1,493,850.977 ------------------------------------------------------------------------ PROPOSAL 2: For shareholders of Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management Agreement between the Trust, on behalf of the Fund, and IMI; and --------------------------------------------------------- FOR AGAINST ABSTAIN 2,121,469.663 27,123.541 10,068.003 --------------------------------------------------------- PROPOSAL 3A: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Henderson Global Investors (North America) Inc. ("HGINA"); and ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,488,037.381 89,305.745 85,262.146 ------------------------------------------------------------ PROPOSAL 3B: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between HGINA and Henderson Investment Management Limited ("Henderson"); and ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,489,481.210 93,343.546 80,135.834 ------------------------------------------------------------ PROPOSAL 4: For shareholders of Ivy Cundill Global Value Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Peter Cundill & Associates, Inc. ("Cundill"); and ------------------------------------------------------------ FOR AGAINST ABSTAIN 251,879.738 7,112.670 7,527.179 ------------------------------------------------------------ PROPOSAL 5: For shareholders of all Funds, to approve or disapprove the election of eight nominees to serve as Trustees on the Board of Trustees. ----------------------------------------------------------------------------- NOMINEE: FOR AGAINST KEITH A. TUCKER 54,459,082.827 2,069,192.008 HENRY J. HERRMANN 54,455,836.913 2,073,536.552 JAMES D. GRESSETT 54,480,456.334 2,047,818.501 JAROLD W. BOETTCHER 54,484,155.922 2,044,118.913 MICHAEL G. SMITH 54,473,248.468 2,052,569.367 JOSEPH HARROZ, JR. 53,859,972.525 2,051,162.062 ELEANOR B. SCHWARTZ 53,853,424.194 2,057,551.889 GLENDON E. JOHNSON, JR. 53,901,560.595 2,008,266.240 ----------------------------------------------------------------------------- Edward M. Tighe, who was elected by shareholders, continued his term of office after the meeting. BOARD OF TRUSTEES Jarold W. Boettcher James D. Gressett Joseph Harroz, Jr. Henry J. Herrmann Glendon E. Johnson,Jr. Eleanor B. Schwartz Michael G. Smith Edward M. Tighe Keith A. Tucker OFFICERS Keith A. Tucker, Chairman of the Board Henry J. Herrmann, President Beverly J. Yanowitch, Treasurer Kristen Richards, Secretary & Vice President LEGAL COUNSEL Bell, Boyd & Lloyd Chicago, Illinois CUSTODIAN Brown Brothers Harriman & Co. Boston, Massachusetts TRANSFER AGENT PFPC Inc. 4400 Computer Drive Westborough, MA 01581 AUDITORS Deloitte & Touche LLP Kansas City, Missouri DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 INVESTMENT MANAGER Waddell & Reed Ivy Investment Company 6300 Lamar Avenue P.O. Box 29217 Shawnee Mission, Kansas 66201-9217 913-236-2000 888-WADDELL