-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WTY3UASTMOW7FCJ0KfazfhlGlfGBL+vZLN35JnFspPPFlnUANnDC5ieJr4GYGuQp E6xI07m22lBleN8uLgB9IQ== 0000945621-00-000186.txt : 20000229 0000945621-00-000186.hdr.sgml : 20000229 ACCESSION NUMBER: 0000945621-00-000186 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVY FUND CENTRAL INDEX KEY: 0000052858 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046006759 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 002-17613 FILM NUMBER: 555302 BUSINESS ADDRESS: STREET 1: 700 SOUTH FEDERAL HIGHWAY STREET 2: SUITE 300 CITY: BOCA RATON STATE: FL ZIP: 33432 BUSINESS PHONE: 407-393-8900 MAIL ADDRESS: STREET 1: P. O. BOX 5007 CITY: BOCA RATON STATE: FL ZIP: 33431-0807 485APOS 1 IVY FUND FILING OF 2/28/00. As filed electronically with the Securities and Exchange Commission on February 28, 2000 (File No. 2-17613) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 112 [ X ] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. [ X ] IVY FUND (Exact Name of Registrant as Specified in Charter) Via Mizner Financial Plaza 700 South Federal Highway - Suite 300 Boca Raton, Florida 33432 (Address of Principal Executive Offices) Registrant's Telephone Number: (800) 777-6472 C. William Ferris Mackenzie Investment Management Inc. Via Mizner Financial Plaza 700 South Federal Highway - Suite 300 Boca Raton, Florida 33432 (Name and Address of Agent for Service) Copies to: Joseph R. Fleming, Esq. Dechert Price & Rhoads Ten Post Office Square, South - Suite 1230 Boston, MA 02109 [X] It is proposed that this Post-Effective Amendment become effective May 1, 2000, pursuant to paragraph (a)(1) of Rule 485. THIS POST-EFFECTIVE AMENDMENT NO. 112 IS BEING FILED IN ORDER TO UPDATE THE REGISTRATION STATEMENT OF THE REGISTRANT TO REFLECT CERTAIN CHANGES TO THE FUNDAMENTAL INVESTMENT POLICIES OF THE FOLLOWING NINETEEN SERIES OF SHARES CURRENTLY OFFERED BY THE REGISTRANT: IVY ASIA PACIFIC FUND, IVY CHINA REGION FUND, IVY DEVELOPING NATIONS FUND, IVY EUROPEAN OPPORTUNITIES FUND, IVY GLOBAL FUND, IVY GLOBAL NATURAL RESOURCES FUND, IVY GLOBAL SCIENCE & TECHNOLOGY FUND, IVY INTERNATIONAL FUND II, IVY INTERNATIONAL SMALL COMPANIES FUND, IVY PAN-EUROPE FUND AND IVY SOUTH AMERICA FUND (THE "INTERNATIONAL EQUITY FUNDS"); IVY GROWTH FUND, IVY GROWTH WITH INCOME FUND, IVY US BLUE CHIP FUND AND IVY US EMERGING GROWTH FUND (THE "US EQUITY FUNDS"); IVY BOND FUND, IVY INTERNATIONAL STRATEGIC BOND FUND AND IVY MONEY MARKET FUND (THE "FIXED INCOME FUNDS"); AND IVY INTERNATIONAL FUND. THE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION THAT ARE INCLUDED IN THIS POST-EFFECTIVE AMENDMENT NO. 112 ARE TO BE USED CONCURRENTLY WITH AND SEPARATELY FROM THE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION RELATING TO ANY OTHER SERIES OF THE REGISTRANT, WHICH ARE NOT INCLUDED HEREWITH, BUT ARE INCORPORATED BY REFERENCE TO THIS FILING. IVY FUND CROSS REFERENCE SHEET Post-Effective Amendment No. 112 contains the Prospectuses and Statements of Additional Information ("SAIs") to be used with the following nineteen series of Ivy Fund (the "Funds"): (1) Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy Pan-Europe Fund and Ivy South America Fund (the "International Equity Funds"); (2) Ivy Growth Fund, Ivy Growth with Income Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the "US Equity Funds"); (3) Ivy Bond Fund, Ivy International Strategic Bond Fund and Ivy Money Market Fund (the "Fixed Income Funds"); and (4) Ivy International Fund. The Prospectuses and SAIs for the Funds appear in the following order: - ---------------------------------- ---------------------------------------- FUND GROUPING: DOCUMENT DESCRIPTION: - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- International Equity Funds Prospectus, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- International Equity Funds Prospectus, Advisor Class Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- US Equity Funds Prospectus, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- US Equity Funds Prospectus, Advisor Class Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- Fixed Income Funds Prospectus, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- Fixed Income Funds* Prospectus, Advisor Class Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- Ivy International Fund* Prospectus, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- International Equity Funds SAI, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- International Equity Funds SAI, Advisor Class Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- US Equity Funds SAI, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- US Equity Funds SAI, Advisor Class Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- Fixed Income Funds SAI, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- Fixed Income Funds* SAI, Advisor Class Shares - ---------------------------------- ---------------------------------------- - ---------------------------------- ---------------------------------------- Ivy International Fund* SAI, Class A/B/C/I Shares - ---------------------------------- ---------------------------------------- * Ivy International Fund and Ivy Money Market Fund do not offer Advisor Class Shares. ITEMS REQUIRED BY FORM N-1A: PART A: PROSPECTUS ITEM 1 FRONT AND BACK COVER PAGES: Front and back cover pages ITEM 2 RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE: Fund-specific sections following front cover page ITEM 3 RISK/RETURN SUMMARY: FEE TABLE: Fund-specific sections following front cover page ITEM 4 INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS: Fund-specific sections following front cover page; Additional Information About Investment Strategies And Risks ITEM 5 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not applicable ITEM 6 MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE: Management ITEM 7 SHAREHOLDER INFORMATION: Shareholder Information ITEM 8 DISTRIBUTION ARRANGEMENTS: Shareholder Information ITEM 9 FINANCIAL HIGHLIGHTS INFORMATION: Financial Highlights PART B: STATEMENT OF ADDITIONAL INFORMATION ITEM 10 COVER PAGE AND TABLE OF CONTENTS: Cover Page; Table of Contents ITEM 11 FUND HISTORY: General Information ITEM 12 DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS: Investment Objectives, Strategies and Risks; Investment Restrictions; Appendix A ITEM 13 MANAGEMENT OF THE FUND: Investment Advisory and Other Services ITEM 14 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees and Officers ITEM 15 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory and Other Services ITEM 16 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage Allocation ITEM 17 CAPITAL STOCK AND OTHER SECURITIES: Capitalization and Voting Rights ITEM 18 PURCHASE, REDEMPTION AND PRICING OF SHARES: Special Rights and Privileges; Capitalization and Voting Rights; Net Asset Value ITEM 19 TAXATION OF THE FUND: Taxation ITEM 20 UNDERWRITERS: Distribution Services ITEM 21 CALCULATION OF PERFORMANCE DATA: Performance Information ITEM 22 FINANCIAL STATEMENTS: Financial Statements 1 Ivy Funds Logo This is your prospectus from IVY MACKENZIE DISTRIBUTORS, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 800.456.5111 _____, 2000 IVY INTERNATIONAL EQUITY FUNDS IVY ASIA PACIFIC FUND IVY CHINA REGION FUND IVY DEVELOPING NATIONS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL FUND II IVY INTERNATIONAL SMALL COMPANIES FUND IVY PAN-EUROPE FUND IVY SOUTH AMERICA FUND Ivy Fund is a registered open-end investment company consisting of twenty-one separate portfolios. This Prospectus relates to the Class A, Class B and Class C shares of the eleven funds listed above (the "Funds"), and the Class I shares of Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II and Ivy International Small Companies Fund. The Funds also offer Advisor Class shares, which are described in a separate prospectus. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. Investments in the Funds are not deposits of any bank and are not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. - -- CONTENTS 2 Ivy Asia Pacific Fund 4 Ivy China Region Fund 6 Ivy Developing Nations Funds 8 Ivy European Opportunities Fund 10 Ivy Global Fund 12 Ivy Global Natural Resources Fund 14 Ivy Global Science & Technology Fund 16 Ivy International Fund II 18 Ivy International Small Companies Fund 20 Ivy Pan-Europe Fund 22 Ivy South America Fund 25 Additional Information about investment strategies and risks 29 Management 31 Shareholder information 39 Financial highlights 45 Account application OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, Massachusetts CUSTODIAN AUDITORS Brown Brothers Harriman & Co. __________________________ Boston, Massachusetts Fort Lauderdale, Florida TRANSFER AGENT INVESTMENT MANAGER Ivy Mackenzie Services Corp. Ivy Management, Inc. PO Box 3022 700 South Federal Highway Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432 800.777.6472 800.456.5111
[Mackenzie Logo] 2 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY ASIA PACIFIC FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY ASIA PACIFIC FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in equity securities issued in Asia Pacific countries, which include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. The Fund's management team uses a value strategy to identify companies and markets that have solid long-term growth prospects and appear to be undervalued. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the securities markets of many Asia-Pacific countries fall into this category, the Fund is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more-developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). REGIONAL RISK: Investing in the Asia-Pacific region involves special risks beyond those described above. For example, certain Asia-Pacific countries may be vulnerable to trade barriers and other protectionist measures that could have an adverse effect on the value of the Fund's portfolio. The limited size of the markets for some Asia-Pacific securities can also make them more susceptible to investor perceptions which can impact their value and liquidity. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors who are seeking long term growth potential in this sector of the world, but who can accept potentially dramatic fluctuations in capital value in the short-term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 2 3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on January 1, 1997 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- (CHART) '97 -39.58% '98 -6.86% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 43.90% Worst quarter Q2 '98: (34.21%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 -------------------------------------------------------------------------- LIPPER MSCI FAR ASIA EAST FREE PACIFIC (EX-JAPAN) (EX-JAPAN) CLASS A CLASS B CLASS C INDEX CATEGORY ---------------------------------------------------------------------------- Past year............ (12.21%) (12.10%) (8.29%) (7.39%) (9.05%) Since Inception*..... (27.29%) (27.09%) (28.60%) (28.94%) (23.78%)
#Performance figures reflect any applicable sales charges. *The inception date for all Classes was January 1, 1997. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - --------------------------------------------------------- CLASS A CLASS B CLASS C - --------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)...................... 5.75% none none Maximum deferred sales charge (load)(as a percentage of purchase price)...................... none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends................... none none none Redemption fee*............. 2.00%** none none Exchange fee................ none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------------- CLASS A CLASS B CLASS C - --------------------------------------------------------- Management fees............. 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees................ 0.25% 1.00% 1.00% Other expenses.............. 4.28% 4.41% 4.30% Total annual Fund operating expenses.......... 5.53% 6.41% 6.30% Expenses reimbursed*........ 3.38% 3.38% 3.38% Net Fund operating expenses*......... 2.15% 3.03% 2.92%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. ----------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- -------------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - -------------------------------------------------------------------------------------- 1st $ 780 $ 806 $ 306 $ 395 $ 295 3rd 1,315 1,346 1,046 1,013 1,013 5th 1,875 2,087 1,807 1,754 1,754 10th 3,392 3,611 3,611 3,708 3,708
3 4 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY CHINA REGION FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY CHINA REGION FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of companies that are located or have a substantial business presence in the China Region, which includes China, Hong Kong, Taiwan and South Korea. The Fund may also invest in equity securities of companies whose current or expected performance is considered to be strongly associated with the China Region. A large portion of the Fund is likely to be invested in equity securities of companies that trade in Hong Kong. The Fund's management team uses a value approach to find stocks it believes are undervalued relative to their long-term growth prospects. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the securities markets of many China Region countries may be considered "developing", the Fund may be exposed to one or more of the following additional risks: - - securities that are even less liquid and more volatile than those in more-developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). REGIONAL RISK: Mainland China may be subject to a much higher degree of economic, political and social instability than more developed countries, which could at any time result in the disruption of its principal financial markets (and to a lesser extent, those of other China Region countries). A number of China Region countries also depend heavily on international trade, which makes their securities markets particularly sensitive to the trade policies and economic conditions of their principal trading partners. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors who are seeking long-term growth potential in this sector of the world, but who can accept potentially dramatic fluctuations in capital value in the short-term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 4 5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on October 22, 1993 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 - ------------------------------------------------------------------- (CHART) '94 -24.88% '95 1.59% '96 20.50% '97 -21.94% '98 -20.56% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 25.48% Worst quarter Q4 '97: (30.21%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ----------------------------------------------------------------------------------------- LIPPER CLASS CHINA HANG MSCI IFC ---------------------------- REGION SENG TAIWAN CHINA A B C CATEGORY INDEX INDEX INDEX ----------------------------------------------------------------------------------------- Past year............ (25.13%) (24.99%) (21.81%) (17.51%) (6.29%) (22.35%) (22.59%) Past 5 years......... (11.68%) (11.63%) n/a (11.54%) (3.31%) 0.57% 2.95% Since inception: Class A & B*......... (8.76%) (8.55%) n/a (8.05%)** 2.77% 9.93% 2.72% Class C***........... n/a n/a (13.93%) (12.22%) (3.21%) (1.19%) 18.37%
#Performance figures reflect any applicable sales charges. *The inception date for the Fund's Class A and Class B shares was October 22, 1993. **Since October 28, 1993 ***The inception date for the Fund's Class C shares was April 30, 1996. -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................. 5.75% none none Maximum deferred sales charge (load)(as a percentage of purchase price)................. none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends... none none none Redemption fee*........ 2.00%** none none Exchange fee........... none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Management fees........ 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees... 0.25% 1.00% 1.00% Other expenses......... 1.51% 1.54% 1.44% Total annual Fund operating expenses..... 2.76% 3.54% 3.44% Expenses reimbursed*... 0.56% 0.56% 0.56% Net Fund operating expenses*.... 2.20% 2.98% 2.88%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be as follows:
- -------------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - -------------------------------------------------------------------------------------- 1st $ 785 $ 801 $ 301 $ 391 $ 291 3rd 1,329 1,331 1,031 1,001 1,001 5th 1,898 1,982 1,782 1,735 1,735 10th 3,436 3,587 3,587 3,671 3,671
5 6 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY DEVELOPING NATIONS FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY DEVELOPING NATIONS FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in equity securities of companies that are located in, or are expected to profit from, countries whose markets are generally considered to be "developing" or "emerging". The Fund may invest more than 25% of its assets in a single country, but usually will hold securities from at least three emerging market countries in its portfolio. The Fund's management team uses a value approach to find stocks it believes are undervalued relative to their long-term growth prospects. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the Fund normally invests a substantial portion of its assets in these countries, it is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - -- WHO SHOULD INVEST* The Fund may be appropriate for investors who are seeking long-term growth potential in the developing nations sector, but who can accept potentially dramatic fluctuations in capital value in the short-term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 6 7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on November 1, 1994 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 - ------------------------------------------------------------------- (Chart) '95 6.40% '96 11.83% '97 -27.42% '98 -11.67% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 29.00% Worst quarter Q4 '97: (27.28%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 --------------------------------------------------------------------------------- MSCI IFC MORNINGSTAR CLASS EMERGING EMERGING EMERGING ------------------------- MARKETS MARKETS MARKETS A B C FREE INDEX INDEX UNIVERSE --------------------------------------------------------------------------------- Past year............ (16.75%) (16.73%) (13.16%) (26.34%) (21.09%) (26.82%) Since inception: Class A & B*......... (10.76%) (10.60%) n/a (12.30%) (12.35%) (9.09%) Class C**............ n/a n/a (15.22%) (15.50%) (15.71%) (12.23%)
#Performance figures reflect any applicable sales charges. *The inception date for the Fund's Class A and Class B shares was November 1, 1994. **The inception date for the Fund's Class C shares was April 30, 1996. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C - ------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price)..................... 5.75% none none Maximum deferred sales charge (load)(as a percentage of purchase price)..................... none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends.................. none none none Redemption fee*............ 2.00%** none none Exchange fee............... none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C - -------------------------------------------------- Management fees........ 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees... 0.25% 1.00% 1.00% Other expenses......... 2.22% 2.25% 2.25% Total annual Fund operating expenses..... 3.47% 4.25% 4.25% Expenses reimbursed*... 1.29% 1.29% 1.29% Net Fund operating expenses*.... 2.18% 2.96% 2.96%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be as follows: EXAMPLE
- -------------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - -------------------------------------------------------------------------------------- 1st $ 783 $ 799 $ 299 $ 399 $ 299 3rd 1,325 1,326 1,026 1,026 1,026 5th 1,891 1,975 1,775 1,775 1,775 10th 3,422 3,573 3,573 3,747 3,747
7 8 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY EUROPEAN OPPORTUNITIES FUND - -------------------------------------------------------------------------------- - ------------------------------- IVY EUROPEAN OPPORTUNITIES FUND - -- INVESTMENT OBJECTIVE The Fund's investment objective is long-term capital growth by investing in the securities markets of Europe. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in the equity securities of European companies, which may include: - - large European companies, or European companies of any size that provide special investment opportunities (such as privatized companies, those providing exceptional value, or those engaged in initial public offerings); - - small-capitalization companies in the more developed markets of Europe; and - - companies operating in Europe's emerging markets. The fund may also invest in European debt securities, up to 20% of which may be low-rated (commonly referred to as "high yield" or "junk" bonds). The Fund's manager uses a "bottom-up" investment approach, focusing on prospects for long term earnings growth. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity Securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller-company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment, even where "management risk" is not a factor. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Certain of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could weaken the Fund's returns if the issuer defaults on its payment obligations. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. EURO CONVERSION RISK: On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro (GLOBE ARTWORK) 8 (GLOBE ARTWORK) 9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, the Fund could experience investment losses. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. - -- PERFORMANCE INFORMATION The Fund has been operating for less than a year, so no performance information is available. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ------------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I - ----------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)........ 5.75% none none none Maximum deferred sales charge (load)(as a percentage of purchase price).................... none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends...... none none none none Redemption fee*........... none none none none Exchange fee.............. none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - ----------------------------------------------------------------- Management fees........... 1.00% 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees...... 0.25% 1.00% 1.00% none Other expenses............ 0.95% 0.95% 0.95% 0.86% Total annual Fund operating expenses*....... 2.20% 2.95% 2.95% 1.86%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- - -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ------------------------------------------------------------------------ (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - ------------------------------------------------------------------------ 1st $ 785 $ 798 $ 298 $ 398 $ 298 $189 3rd 1,330 1,323 1,023 1,023 1,023 699 5th -- -- -- -- -- -- 10th -- -- -- -- -- --
9 10 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GLOBAL FUND - -------------------------------------------------------------------------------- - ------------------------------- IVY GLOBAL FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term capital growth. Any income realized will be incidental. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of companies in at least three different countries, including the United States. The Fund might engage in foreign currency exchange transactions and forward foreign currency contracts to control its exposure to certain risks. The Fund's management team uses a disciplined value approach while looking for investment opportunities around the world. The Fund is expected to have some emerging markets exposure in an attempt to achieve higher returns over the long term. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the Fund may invest a substantial portion of its assets in these countries, it is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange rate regime or monetary policy; - - unusually large currency fluctuations and currency conversion costs; and - - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept significant fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 10 (GLOBE ARTWORK) 11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on April 18, 1991 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 - ------------------------------------------------------------------- [CHART] CLASS A SHARES -------------- '92 2.74% '93 29.63% '94 -4.60% '95 12.08% '96 16.21% '97 -8.72% '98 8.59% '99 ____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 24.15% Worst quarter Q3 '98: (20.47%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ------------------------------------------------------------------------------ MSCI ------------------------- WORLD EAFE EMF CLASS A CLASS B CLASS C INDEX INDEX INDEX ------------------------------------------------------------------------------ Past year............ 2.35% 2.69% 6.30% 24.34% 20.00% (25.34%) Past 5 years......... 3.03% n/a n/a 15.68% 9.19% (9.27%) Since inception: Class A*............. 6.78% n/a n/a 13.03% 8.44% 5.10% Class B**............ n/a 4.11% n/a 16.43% 8.91% (7.91%) Class C***........... n/a n/a (0.06%) 17.37% 7.84% (15.71%)
# Performance figures reflect any applicable sales charges. * The inception date for the Fund's Class A shares was April 18, 1991. Index performance is calculated from April 30, 1991. ** The inception date for the Fund's Class B shares was April 1, 1994. *** The inception date for the Fund's Class C shares was April 30, 1996. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................... 5.75% none none Maximum deferred sales charge (load)(as a percentage of purchase price)................... none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends..... none none none Redemption fee*.......... none none none Exchange fee............. none none none * If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Management fees*....... 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees... 0.25% 1.00% 1.00% Other expenses......... 1.29% 1.33% 1.66% Total annual Fund operating expenses..... 2.54% 3.33% 3.66% Expenses reimbursed**........... 0.36% 0.36% 0.36% Net Fund operating expenses**............. 2.18% 2.97% 3.30%
*Management fees are reduced to 0.75% for net assets over $500 million. **The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- -------------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - -------------------------------------------------------------------------------------- 1st $ 783 $ 800 $ 300 $ 433 $ 333 3rd 1,325 1,329 1,029 1,125 1,125 5th 1,891 1,980 1,780 1,935 1,935 10th 3,422 3,579 3,579 4,044 4,044
11 12 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GLOBAL NATURAL RESOURCES FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY GLOBAL NATURAL RESOURCES FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth. Any income realized will be incidental. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in equity securities. The Fund's manager seeks to maximize the Fund's returns by seeking out natural resources companies of any size with strong management and financial positions, adding balance with established low cost, low debt producers and positions that are based on anticipated commodity price trends. For these purposes, "natural resources" generally include: - - precious metals (such as gold, silver and platinum); - - ferrous and nonferrous metals (such as iron, aluminum, copper and steel); - - strategic metals (such as uranium and titanium); - - fossil fuels and chemicals; - - forest products and agricultural commodities; and - - undeveloped real property. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. NATURAL RESOURCES AND PHYSICAL COMMODITIES RISK: Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including: - - price fluctuations caused by real and perceived inflationary trends and political developments; and - - the costs assumed by natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations, such as: - - potentially severe price fluctuations over short periods of time; - - storage costs that can exceed the custodial and/or brokerage costs associated with the Fund's other portfolio holdings. INDUSTRY-CONCENTRATION RISK: Since the Fund can invest a significant portion of its assets in securities of companies engaged in natural resources activities, the Fund could experience wider fluctuations in value than funds with more diversified portfolios. FOREIGN SECURITY RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept potentially dramatic fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 12 13 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on January 1, 1997 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- CLASS A SHARES -------------- '97 6.95% '98 -29.35% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q3 '97: 19.66% Worst quarter Q4 '97: (23.28%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ----------------------------------------------------------- MSCI COMMODITY- RELATED CLASS A CLASS B CLASS C INDEX --------------------------------------------------------------- Past year............ (33.41%) (33.33%) (31.19%) (14.61%) Since inception*..... (15.68%) (15.45%) (14.17%) (9.65%)
#Performance figures reflect any applicable sales charges. *The inception date for all Classes was January 1, 1997. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C - ------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................... 5.75% none none Maximum deferred sales charge (load) (as a percentage of purchase price)................... none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends..... none none none Redemption fee*.......... none none none Exchange fee............. none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Management fees........ 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees... 0.25% 1.00% 1.00% Other expenses......... 4.50% 4.43% 5.10% Total annual Fund operating expenses..... 5.75% 6.43% 7.10% Expenses reimbursed*... 3.53% 3.53% 3.53% Net Fund operating expenses*.... 2.22% 2.90% 3.57%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- -------------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - -------------------------------------------------------------------------------------- 1st $ 787 $ 793 $ 293 $ 460 $ 360 3rd 1,336 1,308 1,008 1,203 1,203 5th 1,909 1,946 1,746 2,061 2,061 10th 3,459 3,541 3,541 4,273 4,273
13 14 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GLOBAL SCIENCE & TECHNOLOGY FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY GLOBAL SCIENCE & TECHNOLOGY FUND - -- INVESTMENT OBJECTIVE The Fund's investment objective is long-term capital growth. Any income realized will be incidental. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in equity securities of companies throughout the world that are expected to profit from the development, advancement and use of science and technology. Industries that are likely to be represented in the Fund's portfolio holdings include: - - Internet; - - telecommunications and networking equipment; - - semiconductors and semiconductor equipment; - - software; - - computers and peripherals; - - electronic manufacturing services; and - - telecommunications and information services. The Fund's management team believes that technology is a fertile growth area, and actively seeks to position the Fund to benefit from this growth by investing in companies of any size that may deliver rapid earnings growth and potentially high investment returns, which may include the purchase of stock in companies engaged in initial public offerings. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Many of the companies in which the Fund may invest have relatively small market capitalizations. Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller-company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). INDUSTRY-CONCENTRATION RISK: Since the Fund focuses its investments in securities of companies engaged in the science and technology industries, the Fund could experience wider fluctuations in value than funds with more diversified portfolios. For example, rapid advances in these industries tend to cause existing products to become obsolete, and the Fund's returns could suffer to the extent it holds an affected company's shares. Companies in a number of science and technology industries are also subject to government regulations and approval processes that may affect their overall profitability and cause their stock prices to be more volatile. FOREIGN SECURITY RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with new or developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept significant fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 14 15 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on July 22, 1996 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- CLASS A SHARES -------------- '97 9.00% '98 35.26% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 39.16% Worst quarter Q1 '97: (19.15%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 -------------------------------------------------------------------------- RUSSELL 2000 TECHNOLOGY CLASS A CLASS B CLASS C CLASS I** INDEX -------------------------------------------------------------------------- Past year............ 27.48% 29.20% 33.37% n/a 20.57% Since inception*..... 38.96% 40.78% 41.64% n/a 15.12%
#Performance figures reflect any applicable sales charges. *The inception date for all Classes was July 22, 1996. Index performance is calculated from July 30, 1996. **The Fund has had no outstanding Class I shares. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price)...... 5.75% none none none Maximum deferred sales charge (load) (as a percentage of purchase price)...... none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends............ none none none none Redemption fee*................. none none none none Exchange fee......... none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------ Management fees...... 1.00% 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees................. 0.25% 1.00% 1.00% none Other expenses....... 0.91% 0.95% 0.84% 0.82% Total annual Fund operating expenses... 2.16% 2.95% 2.84% 1.82%
- ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ------------------------------------------------------------------------------------------------ (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - ------------------------------------------------------------------------------------------------ 1st $ 781 $ 798 $ 298 $ 387 $ 287 $ 185 3rd 1,212 1,213 913 880 880 573 5th 1,668 1,752 1,552 1,499 1,499 985 10th 2,925 3,085 3,085 3,166 3,166 2,137
15 16 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND II - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY INTERNATIONAL FUND II - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in equity securities principally traded in European, Pacific Basin and Latin American markets. To control its exposure to certain risks, the Fund might engage in foreign currency exchange transactions and forward foreign currency contracts. The Fund's manager uses a disciplined value approach while looking for investment opportunities around the world. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 16 17 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on May 13, 1997 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the year ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- (CHART) CLASS A SHARES -------------- '98 6.63% '99 ____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 16.49% Worst quarter Q3 '98: (18.29%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ------------------------------------------------------------------------------------------------- MORNINGSTAR LIPPER MSCI CATEGORY CATEGORY EAFE FOR INTL FOR INTL CLASS A CLASS B CLASS C CLASS I** INDEX STOCK FUNDS STOCK FUNDS ------------------------------------------------------------------------------------------------- Past year............ 0.50% 0.84% 4.79% n/a 20.00% 12.26% 13.02% Since Inception*..... (6.12%) (5.81%) (3.48%) n/a 9.40% 5.88% 6.43%
#Performance figures reflect any applicable sales charges. *The inception date for all Classes was May 13, 1997. MSCI EAFE Index performance is calculated from May 30, 1997. Morningstar performance calculated from June 1, 1997. Lipper performance calculated from May 15, 1997. **The Fund has had no outstanding Class I shares. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - -------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................. 5.75% none none none Maximum deferred sales charge (load)(as a percentage of purchase price)................. none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends... none none none none Redemption fee*........ none none none none Exchange fee........... none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - --------------------------------------------------------------- Management fees......... 1.00% 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees.... 0.25% 1.00% 1.00% none Other expenses.......... 0.63% 0.63% 0.66% 0.54% Total annual Fund operating expenses...... 1.88% 2.63% 2.66% 1.54% Expenses reimbursed*.... 0.14% 0.14% 0.14% 0.14% Net Fund operating expenses*............... 1.74% 2.49% 2.52% 1.40%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.50% of the Fund's average net assets (excluding 12b-1 fees, and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- - -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- -------------------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - -------------------------------------------------------------------------------------------- 1st $ 742 $ 752 $ 252 $ 355 $ 255 $ 143 3rd 1,287 1,278 978 987 987 653 5th 1,857 1,927 1,727 1,741 1,741 1,190 10th 3,400 3,531 3,531 3,726 3,726 2,660
17 18 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL SMALL COMPANIES FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY INTERNATIONAL SMALL COMPANIES FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the common stock of foreign issuers having total inital market capitalization of less than $2 billion. The Fund may purchase stock in companies engaged in initial public offerings. The Fund might also engage in foreign currency exchange transactions and forward foreign currency contracts to control its exposure to certain risks. The Fund is managed by a team that focuses on both value and growth factors. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since they tend to be thinly traded and because the companies are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept significant fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 18 19 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on January 1, 1997 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. [CHART] ANNUAL TOTAL RETURN for years ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- (CHART) CLASS A SHARES -------------- '97 -12.52% '98 5.24% '99 ______%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q1 '98: 17.44% Worst quarter Q3 '98: (14.96%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 --------------------------------------------------------------------------- HSBC JAMES CAPEL WORLD (EX-US) SMALL COMPANY CLASS A CLASS B CLASS C CLASS I** INDEX --------------------------------------------------------------------------- Past year............ (0.81%) (0.54%) 3.55% n/a 3.31% Since inception*..... (6.88%) (6.73%) (4.72%) n/a (5.13%)
#Performance figures reflect any applicable sales charges. *The inception date for all Classes was January 1, 1997. Index performance is calculated from the same date. **The Fund has had no outstanding Class I shares. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
SHAREHOLDER fees paid directly from FEES your investment - ------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................ 5.75% none none none Maximum deferred sales charge (load)(as a percentage of purchase price)................ none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends............. none none none none Redemption fee*....... none none none none Exchange fee.......... none none none none *If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------ Management fees...... 1.00% 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees................. 0.25% 1.00% 1.00% none Other expenses....... 4.88% 4.90% 4.82% 4.79% Total annual Fund operating expenses... 6.13% 6.90% 6.82% 5.79% Expenses reimbursed*.......... 3.91% 3.91% 3.91% 3.91% Net Fund operating expenses*............ 2.22% 2.99% 2.91% 1.88%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ------------------------------------------------------------------------------------------------ (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - ------------------------------------------------------------------------------------------------ 1st $ 787 $ 802 $ 302 $ 394 $ 294 $ 191 3rd 1,335 1,334 1,034 1,010 1,010 704 5th 1,907 1,987 1,787 1,749 1,749 1,244 10th 3,455 3,598 3,598 3,698 3,698 2,720
19 20 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY PAN-EUROPE FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY PAN-EUROPE FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of large and medium-sized European companies. The Fund's management team uses a disciplined value approach while looking for investment opportunities around the world. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities may be selected for the Fund that may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. EURO CONVERSION RISKS: On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, the Fund could experience investment losses. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 20 21 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on May 13, 1997 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the year ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- (CHART) '98 6.72% '99 ____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q1 '98: 17.61% Worst quarter Q3 '98: (21.25%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ---------------------------------------------------------------------- MORNINGSTAR MSCI EUROPE EUROPE STOCK CLASS A CLASS B CLASS C INDEX UNIVERSE --------------------------------------------------------------------- Past year............ 0.59% 0.98% 1.38% 24.50% 18.97% Since inception*..... 3.71% 4.54% 2.38% 23.66% 17.10%
# Performance figures reflect any applicable sales charges. * The inception date for all Classes was May 13, 1997. MSCI performance is calculated from May 30, 1997. Morningstar performance is calculated from June 1, 1997. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................. 5.75% none none Maximum deferred sales charge (load) (as a percentage of purchase price)................. none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends... none none none Redemption fee*........ none none none Exchange fee........... none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Management fees........ 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees... 0.25% 1.00% 1.00% Other expenses......... 4.31% 4.34% 4.33% Total annual Fund operating expenses..... 5.56% 6.34% 6.33% Expenses reimbursed*... 3.37% 3.37% 3.37% Net Fund operating expenses*.............. 2.19% 2.97% 2.96%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ---------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - ---------------------------------------------------------------------------------- 1st $ 784 $ 800 $ 300 $ 399 $ 299 3rd 1,327 1,328 1,028 1,025 1,025 5th 1,894 1,979 1,779 1,774 1,774 10th 3,429 3,580 3,580 3,745 3,745
21 22 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY SOUTH AMERICA FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY SOUTH AMERICA FUND - -- INVESTMENT OBJECTIVE The Fund's principal objective is long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in equity securities and government and corporate debt securities issued throughout South America, Central America and the Spanish-speaking islands of the Caribbean. The Fund is likely to have significant investments in Argentina, Brazil, Chile, Colombia, Peru and Venezuela. The Fund may invest in low rated debt securities to increase its potential yield. The Fund's management team uses a value approach to find stocks it believes are undervalued relative to their long-term growth prospects or underlying asset values. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Many of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could significantly weaken the Fund's returns if the issuer defaults on its payment obligations. NON-DIVERSIFICATION RISK: The Fund is classified as "non-diversified" under the Investment Company Act of 1940, and may therefore invest a greater percentage of its assets in a particular issuer than a "diversified" fund. As a result, the Fund may also be more susceptible than a diversified fund to the price movements of certain securities it holds in its portfolio. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. 22 23 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The risks of investing in foreign securities are more acute in countries with developing economies, which characterizes many of the countries in which the Fund may invest. As a result, the Fund is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more-developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). REGIONAL RISK: The securities markets of certain Latin American countries are substantially smaller, less developed, less liquid and more volatile than major securities markets elsewhere in the world. For example, the limited market size for a number of the Fund's portfolio holdings makes their prices vulnerable to investor perceptions and traders who control large positions. Some Latin American countries have also experienced unusually high inflation rates. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential in this sector of the world, but who can accept potentially dramatic fluctuations in capital value in the short-term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on November 1, 1994 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 - ------------------------------------------------------- (CHART) '95 -17.28% '96 24.22% '97 7.03% '98 -36.07% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q2 '96: 14.34% Worst quarter Q3 '98: (30.26%) 23 24 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY SOUTH AMERICA FUND - --------------------------------------------------------------------------------
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ----------------------------------------------------------- SINCE INCEPTION PAST ------------------------ YEAR CLASS A & B* CLASS C** ----------------------------------------------------------- Class A................ (39.74%) (13.13%) n/a Class B................ (39.76%) (13.00%) n/a Class C................ (37.69%) n/a (11.75%) MSCI EMF Latin America Index.................. (35.11%) (6.61%) (2.28%) MSCI Brazil Index...... (44.07%) (8.88%) (5.58%) MSCI Argentina Index... (27.30%) (2.00%) (2.03%)
#Performance figures reflect any applicable sales charges. *The inception date for the Fund's Class A and Class B shares was November 1, 1994. **The inception date for the Fund's Class C shares was April 30, 1996. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - -------------------------------------------------------------- CLASS A CLASS B CLASS C - -------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price).... 5.75% none none Maximum deferred sales charge (load)(as a percentage of purchase price).................. none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends........................ none none none Redemption fee*.................. 2.00%** none none Exchange fee..................... none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ------------------------------------------------------------------ CLASS A CLASS B CLASS C - -------------------------------------------------------------- Management fees.................. 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees..................... 0.25% 1.00% 1.00% Other expenses................... 3.64% 3.69% 3.72% Total annual Fund operating expenses............... 4.89% 5.69% 5.72% Expenses reimbursed*............. 2.71% 2.71% 2.71% Net Fund operating expenses*.............. 2.18% 2.98% 3.01%
*The Fund's Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. ------------------------------------------------------------------------------ -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be as follows:
- -------------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - -------------------------------------------------------------------------------------- 1st $ 783 $ 801 $ 301 $ 404 $ 304 3rd 1,325 1,332 1,032 1,041 1,041 5th 1,891 1,985 1,785 1,799 1,799 10th 3,423 3,587 3,587 3,792 3,792
24 25 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS - -- PRINCIPAL STRATEGIES IVY ASIA PACIFIC FUND: The Fund seeks to achieve its investment objective of long-term growth by investing primarily in securities issued in countries throughout the Asia Pacific region, which includes China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. The Fund usually invests in at least three different countries, and does not intend to concentrate its investments in any particular industry. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY CHINA REGION FUND: The Fund seeks to achieve its investment objective of long-term capital growth primarily by investing in the equity securities of companies that are expected to profit from the economic development and growth of the China Region through a direct business connection (such as an exchange listing or significant profit base) in one or more China Region countries. The Fund may invest more than 25% of its assets in the securities of issuers in a single China Region country, and could have significantly more than 50% of its assets invested in Hong Kong. The Fund expects to invest the balance of its assets in the equity securities of companies whose current or expected performance is considered to be strongly associated with the China Region. The Fund's management team seeks to reduce risk by focusing on companies with strong foreign joint venture partners, well-positioned consumer franchises or monopolies, or that operate in strategic or protected industries. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY DEVELOPING NATIONS FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies that the Fund's manager believes will benefit from the economic development and growth of emerging markets. The Fund considers an emerging market country to be one that is generally viewed as "developing" or "emerging" by the World Bank, the International Finance Corporation or the United Nations. The Fund usually invests its assets in at least three different emerging market countries, and may invest at least 25% of its assets in the securities of issuers located in a single country. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY EUROPEAN OPPORTUNITIES FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies located or otherwise doing business in European countries and covering a broad range of economic and industry sectors. The Fund may also invest a significant portion of its assets in debt securities, up to 20% of which is considered below investment grade (commonly referred to as "high yield" or "junk" bonds). The Fund's manager follows a "bottom-up" approach to investing, which focuses on prospects for long term earnings growth. Company selection is generally based on an analysis of a wide range of financial indicators (such as growth, earnings, cash, book and enterprise value), as well as factors such as market position, competitive advantage and management strength. Country and sector allocation decisions are driven by the company selection process. IVY GLOBAL FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies throughout the world. The Fund invests in a variety of economic sectors, industry segments and individual securities to reduce the effects of price volatility in any one area, and normally invests its assets in at least three different countries (including the United States). Countries are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY GLOBAL NATURAL RESOURCES FUND: The Fund seeks to achieve its principal objective of long-term growth by investing primarily in the equity securities of companies throughout the world that own, explore or develop natural resources and other basic commodities (or that supply goods and services to such companies). The Fund's manager targets for investment well managed companies that are expected to increase shareholder value through successful exploration and development of natural resources, balancing the Fund's portfolio with low cost, low debt producers that have outstanding asset bases, and positions that are based on anticipated commodity price trends. Additional emphasis is placed on sectors that are out of favor but appear to offer the most significant recovery potential over a one to three year period. All investment decisions are reviewed systematically and cash reserves may be allowed to build up when valuations seem unattractive. The manager attempts to minimize risk through diversifying the Fund's portfolio by commodity, country, issuer and asset class. Typically the Fund's top 50 investments comprise more than 80% of the Fund's assets. IVY GLOBAL SCIENCE & TECHNOLOGY FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in the common stock of companies that are expected to profit from the development, advancement and use of science and technology. The Fund may also invest in companies that are expected to benefit indirectly from the commercialization of technological and scientific advances. Industries likely to be represented in the Fund's overall portfolio holdings include Internet, computers and peripheral products, software, electronic components and systems, telecommunications, and media and information services. Rapid advances in these industries in recent years have stimulated unprecedented growth. While this is no guarantee of future performance, the Fund's management team believes that these industries offer substantial opportunities for long-term capital appreciation. The Fund intends to invest its assets in at least three different countries, but may at any given time have a substantial portion of its assets invested in the United States. 25 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND II: The Fund seeks to achieve its principal objective of long-term capital growth by investing in equity securities principally traded in European, Pacific Basin and Latin American markets. The Fund invests in a variety of economic sectors and industry segments to reduce the effects of price volatility in any one area. The Fund's manager seeks out rapidly expanding foreign economies and companies that generally have at least $1 billion in capitalization at the time of investment and a solid history of operations. Other factors that the Fund's manager considers in selecting particular countries include long term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY INTERNATIONAL SMALL COMPANIES FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in the foreign stock markets, focusing on issuers that are valued at less than $2 billion across a wide range of geographic, economic and industry sectors. Countries are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. Approximately one half of the Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased under this approach are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. The other half of the Fund's portfolio is managed using a "bottom-up" approach, which focuses on prospects for long-term earnings growth. Company selection for this segment of the Fund is generally based on an analysis of a wide range of financial indicators (such as growth, earnings, cash, book and enterprise value), as well as factors such as market position, competitive advantage and management strength. Country and sector allocation decisions for this segment are driven by the company selection process. IVY PAN-EUROPE FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies located or otherwise doing business in European countries and that cover a broad range of economic and industry sectors. The Fund may also invest a significant portion of its assets outside of Europe. Countries are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY SOUTH AMERICA FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the securities markets of South America and Central America. The Fund normally invests its assets in at least three different countries, and expects to focus its investments in Argentina, Brazil, Chile, Colombia, Peru and Venezuela. The Fund's holdings are concentrated in high-quality companies, selected for both their defensive strengths and long-term prospects. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. The Fund does not expect to concentrate its investments in any particular industry. The Fund may, however, invest more than 5% of a portion of its assets in a single issuer (see "Non-diversificaton risk" on page ____). ALL FUNDS: Each Fund may from time to time take a temporary defensive position and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short-term notes and other money market securities. When a Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk. - -- PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of a Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. Each Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in a Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: The table on the following page identifies the investment techniques that each Fund's advisor considers important in achieving the Fund's investment objective or in managing its exposure to risk (and that could therefore have a significant effect on a Fund's returns). Following the table is a description of the general risk characteristics of these investment techniques. Other investment methods that the Funds may use (such as derivative investments), but that are not likely to play a key role in their overall investment strategies, are described in the Funds' Statement of 26 27 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- Additional Information (see back cover page for information on how you can receive a free copy).
- --------------------------------------------------------------------------------------------------- INVESTMENT TECHNIQUE: IAPF ICRF IDNF IEOF IGF IGNRF IGSTF IIF2 IISCF IPEF ISAF - --------------------------------------------------------------------------------------------------- Common stocks........ X X X X X X X X X X X Debt securities...... X X Low-rated debt securities........... X X Foreign securities... X X X X X X X X X X X Emerging markets..... X X X X X X X X X X X Foreign currencies... X X X X X X X X X X X Depository receipts............ X X X X X X X X X X X Derivatives.......... X X X X X Illiquid securities.......... X X X X X X X X X X X Precious metals...... X Borrowing............ X X X X X X X X X X X Temporary defensive positions............ X X X X X X X X X X X
RISK CHARACTERISTICS - - EQUITY SECURITIES: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of common stock can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller-company securities may also be higher than those of larger companies. Investors in Ivy European Opportunities Fund, Ivy Global Science & Technology Fund and Ivy International Small Companies Fund should note that these risks are heightened in the case of securities issued through IPOs. - - DEBT SECURITIES, IN GENERAL: Investing in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. For example, as interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. A Fund's portfolio is therefore susceptible to the decline in value of the debt instruments it holds in a rising interest rate environment. The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Bonds with longer maturities tend to be more volatile than bonds with shorter maturities. Ivy South America Fund may have significant holdings in sovereign debt. For a variety of reasons (such as cash flow problems, limited foreign reserves, and political constraints), the governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal or interest when due. A governmental entity's ability to honor its debt obligations to the Fund may also be contingent on its receipt from others (such as the International Monetary Fund and more solvent foreign governments) of specific disbursements, which may in turn be conditioned on the perceived health of the governmental entity's economy and/or its implementation of economic reforms. If any of these conditions fail, the Fund could lose the entire value of its investment for an indefinite period of time. - - LOW-RATED DEBT SECURITIES: In general, low-rated debt securities (commonly referred to as "high yield" or "junk" bonds) offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. For this reason, these bonds are considered speculative and could significantly weaken a Fund's returns. - - FOREIGN SECURITIES: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect a Fund's performance favorably or unfavorably, depending upon prevailing conditions at any given time. For example, the securities markets of many foreign countries may be smaller, less liquid and subject to greater price volatility than those in the U.S. Foreign investing may also involve brokerage costs and tax considerations that are not usually present in the U.S. markets. Many of the Funds' securities also are denominated in foreign currencies and the value of each Fund's investments, as measured in U.S. dollars, may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations. Currency conversions can also be costly. Other factors that can affect the value of a Fund's foreign investments include the comparatively weak supervision and regulation by some foreign governments of securities exchanges, brokers and issuers, and the fact that many foreign companies may not be subject to uniform accounting, auditing and financial reporting standards. It may also be difficult to obtain reliable information about the securities and business operations of certain foreign issuers. Settlement of portfolio transactions may also be delayed due to local restrictions or communication problems, which can cause a Fund to miss attractive investment opportunities or impair its ability to dispose of securities in a timely fashion (resulting in a loss if the value of the securities subsequently declines). - - SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities are heightened in countries with new or developing economies. Among these additional risks are the following: - securities that are even less liquid and more volatile than those in more developed foreign countries; - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - increased settlement delays; 27 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - unusually high inflation rates (which in extreme cases can cause the value of a country's assets to erode sharply); - unusually large currency fluctuations and currency conversion costs; and - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - - FOREIGN CURRENCIES: Foreign securities may be denominated in foreign currencies, and the value of a Fund's investments, as measured in U.S. dollars, may be harmed by changes in foreign currency exchange rates and exchange control regulations. Currency conversions can also be costly. - - DEPOSITORY RECEIPTS: Interests in foreign issuers may be acquired in the form of sponsored or unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and similar types of depository receipts. ADRs typically are issued by a U.S. bank or trust company and represent ownership of the underlying securities issued by a foreign corporation. GDRs and other types of depository receipts are usually issued by foreign banks or trust companies. The investing Fund's investments in ADRs, GDRs and other depository receipts are viewed as investments in the underlying securities. Depository receipts can be difficult to price and are not always exchange-listed. Unsponsored depository programs also are organized independently without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. - - DERIVATIVE INVESTMENT TECHNIQUES: A Fund may, but is not required to, use certain derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates and broad or specific market movements) or to enhance potential gain. Among the derivative techniques a Fund might use are options, futures, forward foreign currency contracts and foreign currency exchange transactions. Using put and call options could cause a Fund to lose money by forcing the sale or purchase of portfolio securities at inopportune times or for prices higher (in the case of put options) or lower (in the case of call options) than current market values, by limiting the amount of appreciation the Fund can realize on its investments, or by causing the Fund to hold a security it might otherwise sell. Futures transactions (and related options) involve other types of risks. For example, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of a Fund could cause losses on the hedging instrument that are greater than gains in the value of the Fund's position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, a Fund might not be able to close out a transaction before expiration without incurring substantial losses (and it is possible that the transaction cannot even be closed). In addition, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Foreign currency exchange transactions and forward foreign currency contracts involve a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the adviser's judgment as to certain market movements is incorrect, the risk of losses that are greater than if the investment technique had not been used. For example, changes in currency exchange rates may result in poorer overall performance for a Fund than if it had not engaged in such transactions. There may also be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. An imperfect correlation of this type may prevent a Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. In addition, although the use of these investment techniques for hedging purposes should tend to minimize the risk of loss due to a decline in the value of the hedged position, they also tend to limit any potential gain that might result from an increase in the position's value. - - ILLIQUID SECURITIES: "Illiquid securities" are assets that may not be disposed of in the ordinary course of business within seven days at roughly the value at which the investing fund has valued the assets. These may be "restricted securities," which cannot be sold to the public without registration under the Securities Act of 1933 (in the absence of an exemption) or because of other legal or contractual restrictions on resale. Thus, while illiquid securities may offer the potential for higher returns than more readily marketable securities, there is a risk that the investing fund will not be able to dispose of them promptly at an acceptable price. - - PRECIOUS METALS AND OTHER PHYSICAL COMMODITIES: Ivy Global Natural Resources Fund can invest in precious metals and other physical commodities. Commodities trading is 28 29 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- generally considered speculative because of the significant potential for investment loss. Among the factors that could affect the value of the Fund's investments in commodities are cyclical economic conditions, sudden political events and adverse international monetary policies. Markets for precious metals and other commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. The Fund may also pay more to store and accurately value its commodity holdings than it does with its other portfolio investments. - - BORROWING: For temporary or emergency purposes, Ivy China Region Fund, Ivy Global Fund, Ivy Global Science & Technology Fund and Ivy International Fund II may each borrow up to 10% of the value of its total assets from qualified banks. Ivy Asia Pacific Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy International Small Companies Fund, Ivy Pan-Europe Fund and Ivy South America Fund may each borrow up to one-third of the value of its total assets from qualified banks, but (with the exception of Ivy European Opportunities Fund) will not buy securities whenever its outstanding borrowings exceed 10% of the value of its total assets. Borrowing may exaggerate the effect on a Fund's share value of any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. - -- OTHER IMPORTANT INFORMATION EUROPEAN MONETARY UNION: The Funds may have investments in Europe. On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, a Fund could experience investment losses. MANAGEMENT - -- INVESTMENT ADVISORS Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 IMI provides business management services to the Funds and investment advisory services to all Funds other than Ivy European Opportunities Fund and Ivy Global Natural Resources Fund. IMI is an SEC-registered investment advisor with over $5 billion in assets under management, and provides similar services to the other ten series of Ivy Fund. For the Funds' fiscal year ending December 31, 1999, 29 30 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the Funds (other than Ivy European Opportunities Fund) each paid IMI a fee that was equal to 1.00% of the Funds' respective average net assets. Ivy European Opportunities Fund pays IMI a fee at the rate of 1.00% of the Fund's average net assets. Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue, London, England EC2M 2PA, serves as subadviser to Ivy European Opportunities Fund under an Agreement with IMI. For its services, Henderson receives a fee from IMI that is equal, on an annual basis, to 0.50% of the Fund's average net assets. Since February 1, 1999, Henderson has served as subadviser with respect to 50% of the net assets of Ivy International Small Companies Fund, for which Henderson receives a fee from IMI that is equal, on an annual basis, to 0.50% of that portion of the Fund's assets that Henderson manages. Henderson is an indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance and financial services company located in New South Wales, Australia. Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S 3B5, serves as the investment adviser to Ivy Global Natural Resources Fund and is responsible for selecting the Fund's portfolio investments. MFC has been an investment counsel and mutual fund manager in Toronto for more than 30 years, and as of ___________, 2000 had over $17.8 billion in assets under management. For the Fund's fiscal year ending December 31, 1999, the Fund paid to MFC an aggregate fee equal to 0.50% of the Fund's average net assets. - -- PORTFOLIO MANAGEMENT IVY ASIA PACIFIC FUND, IVY CHINA REGION FUND, IVY DEVELOPING NATIONS FUND, IVY GLOBAL FUND, IVY INTERNATIONAL FUND II, IVY PAN-EUROPE FUND AND IVY SOUTH AMERICA FUND: Each Fund is managed by a team of investment professionals that is supported by research analysts who acquire information on regional and country-specific economic and political developments and monitor individual companies. These analysts use a variety of research sources that include: - - brokerage reports; - - economic and financial news services; - - company reports; and - - information from third-party research firms (ranging from large investment banks with global coverage to local research houses). In many cases, particularly in emerging market countries, IMI's research analysts also conduct primary research by: - - meeting with company management; - - touring facilities; and - - speaking with local research professionals. IVY EUROPEAN OPPORTUNITIES FUND: Stephen Peak, Executive Director of Henderson and head of Henderson's European equities team, is primarily responsible for selecting the Fund's portfolio of investments. Formerly a director and portfolio manager with Touche Remnant & Co., Mr. Peak has 25 years of investment experience. IVY GLOBAL NATURAL RESOURCES FUND: Frederick Sturm, a Senior Vice President of MFC, has managed the Fund since its inception. Mr. Sturm joined MFC in 1983 and has 15 years of professional investment experience. He is a Chartered Financial Analyst and holds a graduate degree in commerce and finance from the University of Toronto. IVY GLOBAL SCIENCE & TECHNOLOGY FUND: The Fund is managed by IMI's Global Technology Team. James W. Broadfoot, President of IMI and a Vice President of Ivy Fund, is the Team's lead manager. Before joining IMI in 1990, Mr. Broadfoot was the principal in an investment counsel firm specializing in emerging growth companies. He has over 25 years of professional investment experience, holds an MBA from the Wharton School of Business and is a Chartered Financial Analyst. 30 31 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- IVY INTERNATIONAL SMALL COMPANIES FUND: The Fund is managed using a team approach. IMI's international equity team is comprised of investment professionals and is supported by research analysts who acquire information on regional and country-specific economic and political developments and monitor individual companies. These analysts use a variety of research sources that include: - - brokerage reports; - - economic and financial news services; - - company reports; and - - information from third party research firms (ranging from large investment banks with global coverage to local research houses). In many cases, particularly in emerging market countries, IMI's research analysts also conduct primary research by: - - meeting with company management; - - touring facilities; and - - speaking with local research professionals. The Henderson team's investment process combines top down regional allocation with a bottom up stock selection approach. Regional allocations are based on factors such as interest rates and current economic cycles, which are used to identify economies with relatively strong prospects for real economic growth. Individual stock selections are based largely on prospects for earnings growth. SHAREHOLDER INFORMATION - -- PRICING OF FUND SHARES Each Fund calculates its share price by dividing the value of the Fund's net assets by the total number of its shares outstanding as of the close of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the Exchange is open for trading (normally any weekday that is not a national holiday). Each portfolio security that is listed or traded on a recognized stock exchange is valued at the security's last quoted sale price on the exchange on which it is principally traded. If no sale is reported at that time, the average between the last bid and asked prices is used. Securities and other Fund assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Funds' Board of Trustees. IMI may also price a foreign security at its fair value if events materially affecting the estimated value of the security occur between the close of the foreign exchange on which the security is principally traded and the time as of which a Fund prices its shares. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of a Fund in an attempt to profit from short-term market movements. When such fair-value pricing occurs, however, there may be some period of time during which a Fund's 31 32 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- share price and/or performance information is not available. The number of shares you receive when you place a purchase or exchange order, and the payment you receive after submitting a redemption request, is based on a Fund's net asset value next determined after your instructions are received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent) or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge (see "Choosing the appropriate class of shares"). Since the Funds normally invest in securities that are listed on foreign exchanges that may trade on weekends or other days when the Funds do not price their shares, each Fund's share value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. - -- HOW TO BUY SHARES Please read these sections below carefully before investing. CHOOSING THE APPROPRIATE CLASS OF SHARES: The essential features of the Funds' different classes of shares are described below. If you do not specify on your Account Application which class of shares you are purchasing, it will be assumed that you are purchasing Class A shares. Each Fund has adopted separate distribution plans pursuant to Rule 12b-1 under the 1940 Act for its Class A, B and C shares that allow the Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Because fees are paid out of the Fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. - - CLASS A SHARES: Class A shares are sold at net asset value plus a maximum sales charge of 5.75% (the "offering price"). The sales charge may be reduced or eliminated if certain conditions are met (see "Additional purchase information"). Class A shares are subject to a 0.25% Rule 12b-1 service fee. - - CLASS B SHARES: Class B shares are offered at net asset value, without an initial sales charge, but subject to a contingent deferred sales charge ("CDSC") that declines from 5% to zero on certain redemptions within six years of purchase. Class B shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee, and convert automatically into Class A shares eight years after purchase. - - CLASS C SHARES: Class C shares are offered at net asset value, without an initial sales charge, but subject to a CDSC of 1% for redemptions within the first year of purchase. Class C shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee. - - CLASS I SHARES: Class I shares are offered to certain classes of investors of Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II and Ivy International Small Companies Fund without any sales load or Rule 12b-1 fees. The following table displays the various investment minimums, sales charges and expenses that apply to each class.
- ------------------------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------------------------- Minimum initial investment*.......... $1,000 $1,000 $1,000 $5,000,000 Minimum subsequent investment*.......... $100 $100 $100 $10,000 Initial sales charge............... Maximum none none none 5.75%, with options for a reduction or waiver CDSC.................. None, except Maximum 1.00% for the none on certain 5.00%, first year NAV purchases declines over six years Service and distribution fees.... 0.25% Service 0.75% 0.75% none fee Distribution distribution fee and 0.25% fee and 0.25% service fee service fee
*Minimum initial and subsequent investments for retirement plans are $25. 32 33 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- - -- ADDITIONAL PURCHASE INFORMATION CLASS A SHARES: Class A shares are sold at a public offering price equal to their net asset value per share plus an initial sales charge, as set forth below (which is reduced as the amount invested increases):
- --------------------------------------------------------------- SALES SALES PORTION OF CHARGE AS A CHARGE AS A PUBLIC PERCENTAGE PERCENTAGE OFFERING OF PUBLIC OF NET PRICE OFFERING AMOUNT RETAINED BY AMOUNT INVESTED PRICE INVESTED DEALER - --------------------------------------------------------------- Less than $50,000..... 5.75% 6.10% 5.00% $50,000 but less than $100,000.............. 5.25% 5.54% 4.50% $100,000 but less than $250,000.............. 4.50% 4.71% 3.75% $250, 000 but less than $500,000......... 3.00% 3.09% 2.50% $500,000 or over*..... 0.00% 0.00% 0.00%
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years of the end of the month in which they were purchased. Class A shares that are acquired through reinvestment of dividends or distributions are not subject to any sales charges. HOW TO REDUCE YOUR INITIAL SALES CHARGE: - "Rights of Accumulation" permits you to pay the sales charge that applies to the cost or value (whichever is higher) of all Ivy Fund Class A shares you own. - A "Letter of Intent" permits you to pay the sales charge that would apply to your cumulative purchase of Fund shares over a 13-month period (certain restrictions apply). HOW TO ELIMINATE YOUR INITIAL SALES CHARGE: You may purchase Class A shares at NAV (without an initial sales charge or a CDSC) through any one of the following methods: - - through certain investment advisors and financial planners who charge a management, consulting or other fee for their services; - - under certain qualified retirement plans; - - as an employee or director of Mackenzie Investment Management Inc. or its affiliates; - - as an employee of a selected dealer; or - - through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Funds are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in assets or fewer than 500 eligible employees. For further information see "Group Systematic Investment Program" in the SAI. Certain trust companies, bank trust departments, credit unions, savings and loans and other similar organizations may also be exempt from the initial sales charge on Class A shares. You may also purchase Class A shares at NAV if you are investing at least $500,000 through a dealer or agent. Ivy Mackenzie Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the dealer or agent (out of IMDI's own resources) for its distribution assistance according to the following schedule:
- -------------------------------------------------- PURCHASE AMOUNT COMMISSION - -------------------------------------------------- First $3,000,000...................... 1.00% Next $2,000,000....................... 0.50% Over $5,000,000....................... 0.25%
IMDI may from time to time pay a bonus or other cash incentive to dealers (other than IMDI), including those that employ a registered representative who during a specified time period sells a minimum dollar amount of the shares of a Fund and/or other funds distributed by IMDI. Each Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of certain dealers meeting criteria established by IMDI. This privilege will apply only to Class A shares of a Fund that are purchased using proceeds obtained by such clients through redemption of another mutual fund's shares on which a sales charge was paid. Purchases must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to an initial sales charge but are subject to a CDSC. If you redeem your Class C shares within one year of purchase they will be subject to a CDSC of 1%, and Class B shares 33 34 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- redeemed within six years of purchase will be subject to a CDSC at the following rates:
- ---------------------------------------------------- CDSC AS A PERCENTAGE YEAR SINCE OF DOLLAR AMOUNT PURCHASE SUBJECT TO CHARGE - ---------------------------------------------------- First...................... 5.00% Second..................... 4.00% Third...................... 3.00% Fourth..................... 3.00% Fifth...................... 2.00% Sixth...................... 1.00% Seventh and thereafter..... 0.00%
The CDSC for both Class B and Class C shares will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. No charge will be assessed on increases in account value above the original purchase price or on reinvested dividends and distributions. Shares will be redeemed on a lot-by-lot basis in the following order: - - Shares held more than six years - - Shares acquired through reinvestment of dividends and distributions - - Shares subject to the lowest CDSC percentage; on a first-in, first-out basis (1) with the portion of the lot attributable to capital appreciation redeemed first, which is not subject to a CDSC; then (2) the portion of the lot attributable to your original basis, which is subject to a CDSC. The CDSC for Class B shares is waived for: - - Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 1/2 years old. - - Redemptions by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers. - - Redemptions resulting from a tax-free return of excess contribution to an IRA. - - Withdrawals resulting from shareholder death or disability provided that the redemption is requested within one year of death or disability. - - Withdrawals through the Systematic Withdrawal Plan of up to 12% per year of your account value at the time the plan is established. Both Class B shares and Class C shares are subject to an ongoing service and distribution fee at a combined annual rate of up to 1.00% of the portfolio's average net assets attributable to its Class B or Class C shares. The ongoing distribution fees will cause these shares to have a higher expense ratio than that of Class A and Class I shares. IMDI uses the money that it receives from the deferred sales charge and the distribution fees to cover various promotional and sales-related expenses, as well as expenses related to providing distributions services, such as compensating selected dealers and agents for selling these shares. Approximately eight years after the original date of purchase, your Class B shares will be converted automatically to Class A shares. Class A shares are subject to lower annual expenses than Class B shares. The conversion from Class B shares to Class A shares is not considered a taxable event for federal income tax purposes. Class C shares do not have a similar conversion privilege. CLASS I SHARES: Class I shares are offered only to institutions and certain individuals, and are not subject to an initial sales charge or a CDSC, nor to ongoing service or distribution fees. Class I shares also bear lower fees than Class A, Class B and Class C shares. - -- SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the end of this Prospectus. Enclose a check payable to the Fund in which you wish to invest. You should note on the check the class of shares you wish to invest in (see page 23 for minimum initial investments.) Deliver your application materials to your registered representative or selling broker, or send them to one of the addresses below: - - BY REGULAR MAIL: Ivy Mackenzie Services Corp. PO Box 3022 Boca Raton, FL 33431-0922 - - BY COURIER: Ivy Mackenzie Services Corp. 700 South Federal Hwy. Boca Raton, FL 33432-6114 34 35 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- - -- BUYING ADDITIONAL SHARES There are several ways to increase your investment in the Fund: - - BY MAIL: Send your check with a completed investment slip (attached to your account statement) or written instructions indicating the account registration, Fund number or name, and account number. Mail to one of the addresses above. - - THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. - - BY WIRE: Purchases may also be made by wiring money from your bank account to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call IMSC at 800.777.6472. Wiring instructions are as follows: First Union National Bank of Florida Jacksonville, FL ABA #063000021 Account #2090002063833 For further credit to: Your Account Registration Your Fund Number and Account Number - - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Ivy Fund account. Complete sections 6A and 7B of the Account Application. - -- HOW TO REDEEM SHARES SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your registered securities dealer or directly through IMSC. If you choose to redeem through your registered securities dealer, the dealer is responsible for properly transmitting redemption orders in a timely manner. If you choose to redeem directly through IMSC, you have several ways to submit your request: - - BY MAIL: Send your written redemption request to IMSC at one of the addresses at left. Be sure that all registered owners listed on the account sign the request. Medallion signature guarantees and supporting legal documentation may be required. When you redeem, IMSC will normally send redemption proceeds to you on the next business day, but may take up to seven days (or longer in the case of shares recently purchased by check). - - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or custodial account. To process your redemption order by telephone, you must have telephone redemption privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. - - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds electronically drawn each month from your Ivy Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: - - BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. - - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. - - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. REDEMPTION FEE: Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund and Ivy South America Fund can experience substantial price fluctuations and are intended for long-term investors. Redemption fees for the Funds are intended to encourage long-term investment, to avoid transaction and other expenses caused by early redemptions, and to facilitate portfolio management. This fee may be waived at the discretion of IMSC. Effective June 1, 1999, the Funds may charge a 2.00% fee for redemptions or exchanges that occur within one month of the date of purchase. This fee is not a CDSC, is not a commission, and does not benefit IMI or IMSC in any way. The redemption fee will be assessed on the net asset value of the shares redeemed or exchanged and will be deducted from the redemption proceeds otherwise payable to the shareholder. Each Fund will retain any fee charged. OTHER IMPORTANT REDEMPTION INFORMATION: - - A CDSC may apply to certain Class A share redemptions, to Class B shares redeemed within 35 36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- six years of purchase, and to Class C shares that are redeemed within one year of purchase. - - If you own shares of more than one class of a Fund, the Fund will redeem first the shares having the highest 12b-1 fees, unless you instruct otherwise. - - Any shares subject to a CDSC will be redeemed last unless you specifically elect otherwise. - - Shares will be redeemed in the order described under "Additional purchase information -- Class B and Class C shares". - - A Fund may (on 60 days' notice) redeem the accounts of shareholders whose investment, including sales charges paid, has been less than $1,000 for more than 12 months. - - A Fund may take up to seven days (or longer in the case of shares recently purchased by check) to send redemption proceeds. - -- HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of another Ivy fund, subject to certain restrictions (see "Important exchange information"). SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as follows: - - BY MAIL: Send your written exchange request to IMSC at one of the addresses on page 25 of this Prospectus. Be sure that all registered owners listed on the account sign the request. - - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. IMPORTANT EXCHANGE INFORMATION: - - You must exchange into the same share class you currently own. - -- Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - - It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee (in the case of certain Funds) or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. - -- DIVIDENDS, DISTRIBUTIONS AND TAXES - - The Funds generally declare and pay dividends and capital gain distributions (if any) at least once a year. - - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - - Reinvested dividends and distributions are added to your account at NAV and are not subject to a CDSC regardless of which share class you own. - - Cash dividends and distributions can be sent to you: - - BY MAIL: a check will be mailed to the address of record unless otherwise instructed. - - BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into your bank account. To change your dividend and/or distribution options, call IMSC at 800.777.6472. Dividends ordinarily will vary from one class to another. The Funds intend to declare and pay dividends annually. The Funds will distribute net investment income and net realized capital gains, if any, at least once a year. The Funds may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the 36 37 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of a Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of a Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, are taxable to you as long-term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Funds' managers may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, they do not generally manage the Funds to optimize tax efficiencies. If shares of a Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by a Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. In certain years, you may be able to claim a credit or deduction on your income tax return for your share of foreign taxes paid by your Fund. Upon the sale or exchange of your Fund shares, you may realize a capital gain or loss which will be long term or short term, generally depending upon how long you held your shares. A Fund may be required to withhold U.S. Federal income tax at the rate of 31% of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Funds, including the status of distributions from the Funds under applicable state or local law. 37 38 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 38 39 [IVY LEAF LOGO] FINANCIAL HIGHLIGHTS The financial highlights tables are intended to help you understand each Fund's financial performance for the past five years (or less if a Fund has a shorter operating history), and reflects results for a single Fund share. The total returns in the table represent the rate an investor would have earned (or lost) each year on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been audited by ________________, whose report, along with each Fund's financial statements, is included in the Fund's Annual Report to shareholders (which is available upon request). - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C ---------------------------------------------------------------------------------- IVY ASIA PACIFIC FUND for the year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1999 1998 1997 1999 1998 1997 SELECTED PER SHARE DATA ---------------------------------------------------------------------------------- Net asset value, beginning of period........... $ $ 6.01 $ 10.00 $ $ 5.99 $ 10.00 $ $ 5.99 $ 10.00 ---------------------------------------------------------------------------------- Loss from investment operations Net investment loss (a)...................... .03 .02 (.01) -- (.01) -- Net gains or losses on securities (both realized and unrealized)................... (.44) (3.98) (.44) (4.00) (.43) (3.99) ---------------------------------------------------------------------------------- Total from investment operations............. (.41) (3.96) (.45) (4.00) (.44) (3.99) ---------------------------------------------------------------------------------- Less distributions Dividends From net investment income................. -- .01 -- -- -- -- In excess of net investment income......... .03 .02 .01 .01 .01 .02 Distributions from capital gains............. .01 -- -- -- -- -- ---------------------------------------------------------------------------------- Total distributions........................ .04 .03 .01 .01 .01 .02 ---------------------------------------------------------------------------------- Net asset value, end of period................. $ $ 5.56 $ 6.01 $ $ 5.53 $ 5.99 $ $ 5.54 $ 5.99 ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- Total return (%)(c)............................ (6.86) (39.58) (7.48) (39.96) (7.37) (39.94) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)....... $ $ 1,393 $ 692 $ $ 2,197 $ 929 $ $ 1,855 $ 764 Ratio of expenses to average net assets (d) With expense reimbursement (%)............... 2.77 2.11 3.65 2.86 3.54 2.74 Without expense reimbursement (%)............ 6.15 10.17 7.03 10.92 6.92 10.80 Ratio of net investment income to average net assets (%)(a)............................ .53 .63 (.35) (.12) (.24) -- Portfolio turnover rate (%).................... 86 1 86 1 86 1
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CLASS A IVY CHINA REGION FUND --------------------------------------------------------------------- for the year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA -------------------------------------------------------------------- Net asset value, beginning of period.................... $ $ 8.04 $ 10.30 $ 8.58 $ 8.61 -------------------------------------------------------------------- Income (loss) from investment operations Net investment loss (a)............................... .13 .02(b) .03 .14 Net gains or losses on securities (both realized and unrealized)......................................... (1.78) (2.28)(b) 1.74 (.01) -------------------------------------------------------------------- Total from investment operations...................... (1.65) (2.26) 1.77 .13 -------------------------------------------------------------------- Less distributions Dividends From net investment income.......................... .09 -- .03 .14 In excess of net investment income.................. -- -- .02 -- Distributions in excess of capital gains.............. -- -- -- .02 ---------------------------------------------------------------- Total distributions................................. .09 -- .05 .16 -------------------------------------------------------------------- Net asset value, end of period.......................... $ $ 6.30 $ 8.04 $ 10.30 $ 8.58 -------------------------------------------------------------------- -------------------------------------------------------------------- Total return (%)........................................ (20.56)(c) (21.94)(c) 20.50(c) 1.59(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................ $ $ 9,061 $ 12,020 $ 15,290 $ 12,855 Ratio of expenses to average net assets (d) With expense reimbursement (%)........................ 2.30 2.44 2.20 2.20 Without expense reimbursement (%)..................... 2.86 2.51 2.48 2.73 Ratio of net investment income to average net assets (%)(a)................................................ 1.60 .28 .32 1.61 Portfolio turnover rate (%)............................. 56 20 22 25
CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------ for the period April 30, 1996 for the year for the year ended (Commencement) ended December 31, December 31, to December 31, - ------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- $ $ 7.96 $ 10.28 $ 8.58 $ 8.61 $ $ 7.94 $ 10.24 $ 9.44 - ------------------------------------------------------------------------------------------------------------------------- .05 (.04)(b) (.04) .08 .08 (.03)(b) -- (1.73) (2.28)(b) 1.74 (.02) (1.75) (2.27)(b) .89 - ------------------------------------------------------------------------------------------------------------------------- (1.68) (2.32) 1.70 .06 (1.67) (2.30) .89 - ------------------------------------------------------------------------------------------------------------------------- .04 -- -- .08 .02 -- -- -- -- -- -- -- -- .09 -- -- -- .01 -- -- -- - ------------------------------------------------------------------------------------------------------------------------- .04 -- -- .09 .02 -- .09 - ------------------------------------------------------------------------------------------------------------------------- $ $ 6.24 $ 7.96 $ 10.28 $ 8.58 $ $ 6.25 $ 7.94 $ 10.24 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- (21.04)(c) (22.57)(c) 19.67(c) .83(c) (21.02)(c) (22.46)(c) 9.39 (f) $ $ 6,080 $ 7,893 $ 8,995 $ 6,905 $ $ 704 $ 1,129 $ 449 3.08 3.17 2.95 2.95 2.98 3.05 2.71 (e) 3.64 3.24 3.23 3.48 3.54 3.12 2.99 (e) .82 (.45) (.43) .86 .92 (.33) (.19)(e) 56 20 22 25 56 20 22
- -------------------------------------------------------------------------------- (a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Based on average shares outstanding. (c) Total return does not reflect a sales charge. (d) Beginning in 1995, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (e) Annualized (f) Total return repre- sents aggregate total return and does not reflect a sales charge. [IVY LEAF LOGO] - -------------------------------------------------------------------------------
CLASS A IVY DEVELOPING NATIONS FUND ------------------------------------------------------------- for the year ended December 31, - ---------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA -------------------------------------------------------------- Net asset value, beginning of period..................... $ $ 6.82 $ 10.12 $ 9.05 $ 8.64 ------------------------------------------------------------- Income (loss) from investment operations Net investment income (loss) (a)....................... .06 .01 (.02) .01 Net gains or losses on securities (both realized and unrealized)...................................... (.86) (2.80) 1.09 .54 ------------------------------------------------------------- Total from investment operations....................... (.80) (2.79) 1.07 .55 ------------------------------------------------------------- Less distributions Dividends From net investment income......................... -- -- -- .01 In excess of net investment income................. -- .01 -- -- Distributions From capital gains................................. -- .30 -- .10 In excess of capital gains......................... -- .20 -- .03 ------------------------------------------------------------- Total distributions.................................. -- .51 -- .14 ------------------------------------------------------------- Net asset value, end of period........................... $ $ 6.02 $ 6.82 $ 10.12 $ 9.05 ============================================================= Total return (%)......................................... (11.67)(c) (27.42)(c) 11.83(c) 6.40(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................. $ $ 5,487 $ 8,584 $ 9,925 $ 3,435 Ratio of expenses to average net assets (d) With expense reimbursement (%)......................... 2.18 2.31 2.45 2.55 Without expense reimbursement (%)...................... 3.47 2.39 2.82 7.18 Ratio of net investment income (loss) to average net assets (%)(a).......................................... .88 .09 (.23) .24 Portfolio turnover rate (%).............................. 47 42 27 14
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IVY EUROPEAN OPPORTUNITIES FUND CLASS A CLASS B CLASS C CLASS I -------------------------------------------------------------------------- for the year ended December 31, 1999 SELECTED PER SHARE DATA Net asset value, beginning of period................ Income (loss) from investment operations Net investment income (loss)....................... Net gains or losses on securities (both realized and unrealized).................................. Total from investment operations................... Less distributions Dividends From net investment income....................... In excess of net investment income............... Distributions From net realized gain........................... In excess of net realized gain................... Returns of capital............................... Total distributions................................ Net asset value, end of period...................... Total return (%).................................... RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............ Ratio of expenses to average net assets With expense reimbursement (%)..................... Without expense reimbursement (%).................. Ratio of net investment income (loss) to average net assets (%)......................................... Portfolio turnover rate (%).........................
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CLASS A IVY GLOBAL FUND --------------------------------------------------------- for the year ended December 31, - ---------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA --------------------------------------------------------- Net asset value, beginning of period................ $ $ 10.93 $ 13.17 $ 11.97 $ 11.23 --------------------------------------------------------- Income (loss) from investment operations Net investment income (loss)....................... .02(a) .08 .08 .09(a) Net gains or losses on securities (both realized and unrealized).................................. .91 (1.23) 1.86 1.25 --------------------------------------------------------- Total from investment operations................... .93 (1.15) 1.94 1.34 --------------------------------------------------------- Less distributions Dividends From net investment income....................... -- .05 .08 .04 In excess of net investment income............... -- .05 .18 -- Distributions From net realized gain........................... .54 .99 .48 .49 In excess of net realized gain................... -- -- -- .07 Returns of capital............................... -- -- -- -- --------------------------------------------------------- Total distributions................................ .54 1.09 .74 .60 --------------------------------------------------------- Net asset value, end of period...................... $ $ 11.32 $ 10.93 $ 13.17 $ 11.97 --------------------------------------------------------- --------------------------------------------------------- Total return (%).................................... 8.59(b) (8.72)(b) 16.21(b) 12.08(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............ $ $ 14,660 $19,692 $24,152 $21,264 Ratio of expenses to average net assets With expense reimbursement (%)..................... 2.18 -- -- 2.20 Without expense reimbursement (%).................. 2.54 2.07 2.18 2.46 Ratio of net investment income (loss) to average net assets (%)......................................... .16(a) .58 .58 .71(a) Portfolio turnover rate (%)......................... 17 45 43 53
39 40
CLASS B CLASS C ------------------------------------------------------------------------------------------------------------- for the period for the April 30, 1996 for the year ended year ended (Commencement) December 31, December 31, to December 31, -------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 1996 -------------------------------------------------------------------------------------------------------------- $ $10.90 $ 13.12 $11.97 $11.23 $ $10.67 $12.94 $13.31 -------------------------------------------------------------------------------------------------------------- (.09)(a) (.02) (.02) --(a) (.16)(a) (.02) (.01) .92 (1.20) 1.85 1.25 .93 (1.24) .42 -------------------------------------------------------------------------------------------------------------- .83 (1.22) 1.83 1.25 .77 (1.26) .41 -------------------------------------------------------------------------------------------------------------- -- .05 -- -- -- .05 -- -- .05 .20 -- -- .05 .30 .54 .90 .48 .45 .54 .91 .48 -- -- -- .06 -- -- -- -- -- -- -- -- -- -- -------------------------------------------------------------------------------------------------------------- .54 1.00 .68 .51 .54 1.01 .78 -------------------------------------------------------------------------------------------------------------- $ $11.19 $ 10.90 $13.12 $11.97 $ $10.90 $10.67 $12.94 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- 7.69(b) (9.33)(b) 15.30(b) 11.25(b) 7.30(b) (9.72)(b) 3.07(c) $ $7,495 $10,056 $8,968 $4,811 $ $ 428 $ 727 $ 71 2.97 -- -- 2.95 3.30 -- -- 3.33 2.82 2.94 3.21 3.66 2.82 3.77(d) (.63)(a) (.18) (.17) (.04)(a) (.96)(a) (.18) (1.01)(d) 17 45 43 53 17 45 43
- ------------------------------------------------------------------------------- (a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return repre- sents aggregate total return and does not reflect a sales charge. (d) Annualized 40 41 [IVY LEAF LOGO]
- -------------------------------------------------------------------------------------------------------------------- CLASS A CLASS B ----------------------------------------------------- IVY GLOBAL NATURAL RESOURCES FUND for the year ended December 31, - -------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 SELECTED PER SHARE DATA ----------------------------------------------------- Net asset value, beginning of period........................ $ $9.01 $10.00 $ $ 9.00 $10.00 Income (loss) from investment operations Net investment income (loss)(a)........................... .03 (.11) ( .04) (.15) Net gains or losses on securities (both realized and unrealized)............................................. (2.68) .70 (2.65) .68 ----------------------------------------------------- Total from investment operations.......................... (2.65) .59 (2.69) .53 ----------------------------------------------------- Less distributions Dividends in excess of net investment income.............. .04 .22 .04 .17 Distributions From net realized gain.................................. -- 1.08 -- 1.08 In excess of net realized gain.......................... -- .28 -- .28 ----------------------------------------------------- Total distributions..................................... .04 1.58 .04 1.53 ----------------------------------------------------- Net asset value, end of period.............................. $ $ 6.32 $ 9.01 $ 6.27 $ 9.00 ----------------------------------------------------- ----------------------------------------------------- Total return (%)(b)......................................... (29.35) 6.95 (29.82) 6.28 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ $ 1,345 $3,907 $ 1,320 $2,706 Ratio of expenses to average net assets With expense reimbursement (%)............................ 2.22 2.10 2.90 2.86 Without expense reimbursement (%)......................... 5.75 2.88 6.43 3.64 Ratio of net investment income (loss) to average net assets (%)(a).................................................... .29 (1.10) (.39) (1.86) Portfolio turnover rate (%)................................. 98 199 98 199
- -------------------------------------------------------------------------------------------- CLASS C ---------------------------------- IVY GLOBAL NATURAL RESOURCES FUND for the year ended December 31, - -------------------------------------------------------------------------------------------- 1999 1998 1997 SELECTED PER SHARE DATA -------------------------------- Net asset value, beginning of period........................ $ $ 9.00 $10.00 Income (loss) from investment operations Net investment income (loss)(a)........................... (.14) (.17) Net gains or losses on securities (both realized and unrealized)............................................. (2.61) .68 -------------------------------- Total from investment operations.......................... (2.75) .51 -------------------------------- Less distributions Dividends in excess of net investment income.............. .04 .15 Distributions From net realized gain.................................. -- 1.08 In excess of net realized gain.......................... -- .28 -------------------------------- Total distributions..................................... .04 1.51 -------------------------------- Net asset value, end of period.............................. $ $ 6.21 $ 9.00 -------------------------------- -------------------------------- Total return (%)(b)......................................... (30.49) 6.08 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ $ 41 $ 124 Ratio of expenses to average net assets With expense reimbursement (%)............................ 3.57 3.08 Without expense reimbursement (%)......................... 7.10 3.86 Ratio of net investment income (loss) to average net assets (%)(a).................................................... (1.06) (2.08) Portfolio turnover rate (%)................................. 199
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CLASS A IVY GLOBAL SCIENCE & TECHNOLOGY FUND ------------------------------------------------------- for the period July 22, 1996 for the year ended (Commencement) December 31, to December 31, - ------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 SELECTED PER SHARE DATA -------------------------------------------------------- Net asset value, beginning of period........................ $ $ 17.47 $ 16.40 $10.00 Income from investment operations Net investment loss........................................ (.36)(e) (.31)(e) (.06)(a) Net gains or losses on securities (both realized and unrealized).............................................. 6.52(e) 1.38(e) 6.49 -------------------------------------------------------- Total from investment operations........................... 6.16 1.07 6.43 -------------------------------------------------------- Less distributions Distributions from net realized gain....................... -- -- .03 -------------------------------------------------------- Total distributions...................................... -- -- .03 -------------------------------------------------------- Net asset value, end of period.............................. $ $ 23.63 $ 17.47 $16.40 -------------------------------------------------------- -------------------------------------------------------- Total return (%)............................................ 35.26(b) 6.53(b) 64.34(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ $17,888 $12,159 $8,324 Ratio of expenses to average net assets With expense reimbursement (%)............................. -- -- 2.19(d) Without expense reimbursement (%).......................... 2.16 2.11 2.90(d) Ratio of net investment loss to average net assets (%)...... (1.88) (1.91) (2.18)(a)(d) Portfolio turnover rate (%)................................. 73 54 23
41 42 - --------------------------------------------------------------------------------
CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------- for the period for the period July 22, 1996 July 22, 1996 for the year ended (Commencement) for the year ended (Commencement) December 31, to December 31, December 31, to December 31, - ------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- $ $ 17.37 $ 16.44 $ 10.00 $ $ 17.40 $ 16.46 $ 10.00 (.50)(e) (.32)(e) (.06)(a) (.48)(e) (.42)(e) (.05)(a) 6.44(e) 1.25(e) 6.52 6.46(e) 1.36(e) 6.53 - ------------------------------------------------------------------------------------------------------------- 5.94 .93 6.46 5.98 .94 6.48 - ------------------------------------------------------------------------------------------------------------- -- -- .02 -- -- .02 - ------------------------------------------------------------------------------------------------------------- -- -- .02 -- -- .02 - ------------------------------------------------------------------------------------------------------------- $ $ 23.31 $ 17.73 $ 16.44 $ $ 23.38 $ 17.40 $ 16.46 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- $ $ 34.20(b) $ 5.66(b) $ 64.59(c) 34.37(b) 5.71(b) 64.84(c) $ $10,197 $ 8,577 $ 3,425 $ $ 8,431 $ 6,348 $ 2,106 -- -- 2.99(d) -- -- 2.95(d) 2.95 2.92 3.70(d) 2.84 2.85 3.66(d) (2.67) (2.72) (2.98)(a)(d) (2.56) (2.65) (2.94)(a)(d) 73 54 23 73 54 23
(a) Net investment loss is net of expenses reimbursed by Manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return and does not reflect a sales charge. (d) Annualized (e) Based on average shares outstanding. 42 43 [IVY LEAF LOGO] - --------------------------------------------------------------------------------
CLASS A IVY INTERNATIONAL FUND II -------------------------------------- for the period for the May 13, 1997 year ended (Commencement) December 31, to December 31, - ----------------------------------------------------------------------------------------------------- 1999 1998 1997 SELECTED PER SHARE DATA --------------------------------------- Net asset value, beginning of period........................ $ $ 8.98 $ 10.01 --------------------------------------- Income (loss) from investment operations Net investment income (a)................................. .08 --(f) Net gains or losses on securities (both realized and unrealized)............................................. .52 (1.03)(f) --------------------------------------- Total from investment operations.......................... .60 (1.03) --------------------------------------- Less distributions Dividends from net investment income...................... .08 -- Distributions from net realized gain...................... .02 -- --------------------------------------- Total distributions..................................... .10 -- --------------------------------------- Net asset value, end of period.............................. $ $ 9.48 $ 8.98 --------------------------------------- --------------------------------------- Total return (%)............................................ 6.63(b) (10.29)(d) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ $24,993 $16,202 Ratio of expenses to average net assets With expense reimbursement (%)............................ 1.74 1.80(e) Without expense reimbursement (%)......................... 1.88 2.11(e) Ratio of net investment income to average net assets (%)(a).................................................... .80 .12(e) Portfolio turnover rate (%)................................. 16 10
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C IVY INTERNATIONAL SMALL --------------------------------------------------------------------- COMPANIES FUND for the year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1999 1998 1997 1999 1998 1997 SELECTED PER SHARE DATA ---------------------------------------------------------------------- Net asset value, beginning of period........................ $ $8.66 $ 10.00 $ $ 8.63 $ 10.00 $ $ 8.65 $ 10.00 ---------------------------------------------------------------------- Income (loss) from investment operations Net investment income (loss) (a).......................... .04 (.01) (.03) (.05) (.03) (.06) Net gains or losses on securities (both realized and unrealized)............................................. .41 (1.24) .41 (1.27) .42 (1.25) ---------------------------------------------------------------------- Total from investment operations.......................... .45 (1.25) .38 (1.32) .39 (1.31) ---------------------------------------------------------------------- Less distributions Dividends in excess of net investment income.............. .15 -- .08 -- .06 -- Distributions from net realized gain...................... .01 .09 .01 .05 .01 .04 ---------------------------------------------------------------------- Total distributions..................................... .16 .09 .09 .05 .07 .04 ---------------------------------------------------------------------- Net asset value, end of period.............................. $ $8.95 $ 8.66 $ $ 8.92 $ 8.63 $ $ 8.97 $ 8.65 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Total return (%)(b)......................................... 5.24 (12.52) 4.46 (13.19) 4.55 (13.14) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ $ 980 $ 992 $ $1,027 $ 1,007 $ $1,125 $ 1,574 Ratio of expenses to average net assets (c) With expense reimbursement (%)............................ 2.47 2.50 3.24 3.31 3.16 3.23 Without expense reimbursement (%)......................... 6.38 4.87 7.15 5.68 7.07 5.60 Ratio of net investment income (loss) to average net assets (%)(a).................................................... .39 (.11) (.38) (.91) (.30) (.83) Portfolio turnover rate (%)................................. 18 10 18 10 18 10
43 44 - ------------------------------------------------------------------------------
CLASS B CLASS C - ------------------------------------------------------------------------------- for the period for the period for the May 13, 1997 for the May 13, 1997 year ended (Commencement) year ended (Commencement) December 31, to December 31, December 31, to December 31, - ------------------------------------------------------------------------------------------ 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------ $ $ 8.93 $ 10.01 $ $ 8.93 $ 10.01 - ------------------------------------------------------------------------------------------ .01 (.02)(f) .01 (.02)(f) .51 (1.06)(f) .51 (1.06)(f) - ------------------------------------------------------------------------------------------ .52 (1.08) .52 (1.08) - ------------------------------------------------------------------------------------------ .01 -- .01 -- .02 -- .02 -- - ------------------------------------------------------------------------------------------ .03 -- .03 -- - ------------------------------------------------------------------------------------------ $ $ 9.42 $ 8.93 $ $ 9.42 $ 8.93 - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ 5.84(b) (10.29)(d) 5.79(b) (10.79)(d) $ $80,938 $53,652 $ $40,408 $27,074 2.49 2.63(e) 2.52 2.63(e) 2.63 2.94(e) 2.66 2.94(e) .05 (.71)(e) .03 (.71)(e) 16 10 16 10
(a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total expenses include fees paid indirectly, if any, through an expense offset arrangement. (d) Total return represents aggregate total return and does not reflect a sales charge. (e) Annualized (f) Based on average shares outstanding. 44 45 [IVY LEAF LOGO]
- ------------------------------------------------------------------------------------------------------------------------------- IVY PAN-EUROPE FUND CLASS A CLASS B ------------------------------------------------------------------------------ for the period for the period for the year May 13, 1997 for the year May 13, 1997 ended (Commencement) ended (Commencement) December 31, to December 31, December 31, to December 31, - ------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 SELECTED PER SHARE DATA -------------------------------------------------------------------------------------- Net equity securities asset value, beginning of period........................... $ $10.56 $10.02 $ $10.54 $10.02 -------------------------------------------------------------------------------------- Income from investment operations Net investment loss (a)............. (.01)(f) (.02) (.01)(f) (.03) Net gains or losses on securities (both realized and unrealized).... .72(f) .58 .64(f) .56 -------------------------------------------------------------------------------------- Total from investment operations.... .71 .56 .63 .53 -------------------------------------------------------------------------------------- Less distributions Distributions from net realized gain.............................. -- .02 -- .01 -------------------------------------------------------------------------------------- Total distributions............... -- .02 -- .01 -------------------------------------------------------------------------------------- Net asset value, end of period........ $ $11.27 $10.56 $ $11.17 $10.54 -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- Total return (%)...................... 6.72(d) 5.54(b) 5.98(d) 5.26(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).......................... $ $1,862 $ 575 $ $3,604 $ 70 Ratio of expenses to average net assets (e) With expense reimbursement (%)...... 2.49 2.20(c) 3.27 3.29(c) Without expense reimbursement (%)... 5.86 28.41(c) 6.64 29.50(c) Ratio of net investment loss to average net assets (%)(a)........... (.12) (.48)(c) (.90) (1.58)(c) Portfolio turnover rate (%)........... 25 5 25 5
- ------------------------------------------ ----------------------------- IVY PAN-EUROPE FUND CLASS C - ------------------------------------------------------------------------------ for the period January 29, 1998 (Commencement) to December 31, - ------------------------------------------------------------------------------ 1999 1998 SELECTED PER SHARE DATA ----------------------------- Net equity securities asset value, beginning of period........................... $ $10.91 ----------------------------- Income from investment operations Net investment loss (a)............. (.02) (.02)(f) Net gains or losses on securities (both realized and unrealized).... .28 .28(f) ----------------------------- Total from investment operations.... .26 .26 ----------------------------- Less distributions Distributions from net realized gain.............................. -- -- ----------------------------- Total distributions............... -- -- ----------------------------- Net asset value, end of period........ $11.17 $11.17 ----------------------------- ----------------------------- Total return (%)...................... 2.38( 2.38(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).......................... $ 863 $ 863 Ratio of expenses to average net assets (e) With expense reimbursement (%)...... 3.26( 3.26(c) Without expense reimbursement (%)... 6.63( 6.63(c) Ratio of net investment loss to average net assets (%)(a)........... (.89) (.89)(c) Portfolio turnover rate (%)........... 25 25
(a) Net investment loss is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized (d) Total return does not reflect a sales charge. (e) Total expenses include fees paid indirectly, if any, through an expense offset arrangement. (f) Based on average shares outstanding. 47 46
CLASS A IVY SOUTH AMERICA FUND ----------------------------------------------------------- for the year ended December 31, - ------------------------------------------------------------------------------------------------------------------------ SELECTED PER SHARE DATA 1999 1998 1997 1996 1995 ------------------------------------------------------------ Net asset value, beginning of period..................... $ $ 8.96 $ 8.51 $ 6.88 $ 8.37 ------------------------------------------------------------ Income (loss) from investment operations Net investment (loss) (a).............................. .21 .06 .01 .01 Net gains or losses on securities (both realized and unrealized)...................................... (3.44) .53 1.66 (1.45) ------------------------------------------------------------ Total from investment operations....................... (3.23) .59 1.67 (1.44) ------------------------------------------------------------ Less distributions Dividends from net investment income................... -- .04 -- -- Distributions from capital gains....................... .15 .10 .04 -- Returns of capital..................................... -- -- -- .05 ------------------------------------------------------------ Total distributions.................................. .15 .14 .04 .05 ------------------------------------------------------------ Net asset value, end of period........................... $ $ 5.58 $ 8.96 $ 8.51 $ 6.88 ============================================================ Total return (%)......................................... (36.07)(c) 7.03(c) 24.22(c) (17.28)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................. $ $ 1,638 $ 5,671 $ 4,016 $ 2,015 Ratio of expenses to average net assets (d) With expense reimbursement (%)......................... 2.38 2.45 2.55 2.61 Without expense reimbursement (%)...................... 5.09 3.18 4.89 9.26 Ratio of net investment income (loss) to average net assets (%)(a).......................................... 1.96 .65 .24 .22 Portfolio turnover rate (%).............................. 26 10 20 45
CLASS B CLASS C --------------------------------------------------------------------------------------------------------------------------------- for the period April 30, 1996 for the year ended for the year ended (Commencement) to December 31, December 31, December 31, --------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 1996 --------------------------------------------------------------------------------------------------------------------------------- $ $ 6.77 $ 10.04 $ 9.05 $ 8.64 $ $ 6.79 $ 10.06 $ 9.89 --------------------------------------------------------------------------------------------------------------------------------- .01 (.06) (.06) (.02) .01 (.07) (.02) (.85) (2.76) 1.05 .51 (.84) (2.76) .19 --------------------------------------------------------------------------------------------------------------------------------- (.84) (2.82) .99 .49 (.83) (2.83) .17 --------------------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- -- .01 -- -- -- .01 -- -- .28 -- .08 -- .27 -- -- .16 -- -- -- .16 -- --------------------------------------------------------------------------------------------------------------------------------- -- .45 -- .08 -- .44 -- --------------------------------------------------------------------------------------------------------------------------------- $ $ 5.93 $ 6.77 $ 10.04 $ 9.05 $ $ 5.96 $ 6.79 $ 10.06 ================================================================================================================================= (12.35)(c) (27.93)(c) 10.95(c) 5.62(c) (12.16)(c) (28.01)(c) 1.73(f) $ $ 6,145 $ 8,488 $ 6,269 $ 945 $ $ 2,641 $ 2,420 $ 1,854 2.96 3.09 3.20 3.30 2.96 3.12 3.16(e) 4.25 3.17 3.57 7.93 4.25 3.20 3.53(e) .10 (.69) (.98) (.51) .10 (.72) (.94)(e) 47 42 27 14 47 42 27
-------------------------------------------------------------------------------------------------------------------------------- CLASS B CLASS C -------------------------------------------------------------------------------------------------------------------------------- for the period April 30, 1996 for the year ended for the year ended (Commencement) to December 31, December 31, December 31, -------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 1996 -------------------------------------------------------------------------------------------------------------------------------- $ $ 8.94 $ 8.48 $ 6.88 $ 8.37 $ $ 8.89 $ 8.46 $ 7.96 -------------------------------------------------------------------------------------------------------------------------------- .12 (.01) (.03) (.02) .12 (.02) (.02) (3.39) .53 1.63 (1.47) (3.38) .53 .55 -------------------------------------------------------------------------------------------------------------------------------- (3.27) .52 1.60 (1.49) (3.26) .51 .53 -------------------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- .15 .06 -- -- .15 .08 .03 -- -- -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------------- .15 .06 -- -- .15 .08 .03 -------------------------------------------------------------------------------------------------------------------------------- $ $ 5.52 $ 8.94 $ 8.48 $ 6.88 $ $ 5.48 $ 8.89 $ 8.46 ================================================================================================================================ (36.59)(c) 6.18(c) 23.26(c) (17.90)(c) (36.69)(c) 6.06(c) 6.66 (f) $ $ 972 $ 3,028 $ 2,025 $ 684 $ $ 148 $ 453 $ 111 3.18 3.23 3.33 3.36 3.21 3.30 3.46 (e) 5.89 3.96 5.67 10.01 5.92 4.03 5.80 (e) 1.16 (.13) (.54) (.53) 1.13 (.20) (.68)(e) 26 10 20 45 26 10 20
(a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Based on average shares outstanding. (c) Total return does not reflect a sales charge. (d) Beginning in 1995, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (e) Annualized (f) Total return represents aggregate total return and does not reflect a sales charge. 48 47 Account Application FUND USE ONLY __________________________ Account Number __________________________ Dealer/Branch/Rep __________________________ Account Type/Soc Cd [IVY FUNDS LOGO] Please mail applications and checks to: Ivy Mackenzie Services Corp., P.O. Box 3022, Boca Raton, Florida 33431-0922 This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. 1 REGISTRATION Name_____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ Address _________________________________________________________________ City_______________________________________State__________ Zip___________ Phone # (day) (____)_____________ Phone # (evening) (___)________________ __ Individual __ UGMA/UTMA __ Sole proprietor __ Joint tenant __ Corporation __ Trust __ Estate __ Partnership __ Other Date of trust ________________ Minor's state of residence _______________ 2 TAX I.D. Citizenship: ___ U.S. ___ Other (please specify):___________________ Social security # ______-____-______ or Tax identification______________ Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) Please see the "Dividends, distributions and taxes" section of the Prospectus for additional information on completing this section. 3 DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify IMSC of any purchases made under a Letter of Intent or Rights of Accumulation. Dealer name______________________________________________________________ Branch office address____________________________________________________ City_______________________________________State__________ Zip___________ Representative's name ___________________________________________________ Representative's #___________________ Representative's phone_____________ Authorized signature of dealer __________________________________________ 4 INVESTMENTS A. Enclosed is my check ($1,000 minimum) for________ made payable to the appropriate fund. Please invest it in: ________________ Class A ________________ Class B ________________ Class C ________________ Class I shares ("*" Funds only) of the following fund(s): $ _____________ Ivy Asia Pacific Fund $ _____________ Ivy China Region Fund $ _____________ Ivy Developing Nations Fund $ _____________ Ivy European Opportunities Fund* $ _____________ Ivy International Fund II* $ _____________ Ivy Global Fund $ _____________ Ivy International Small Companies Fund* $ _____________ Ivy Global Natural Resources Fund $ _____________ Ivy Pan-Europe Fund $ _____________ Ivy Global Science & Technology Fund* $ _____________ Ivy South America Fund
B. I qualify for a reduction or elimination of the sales charge due to the following privilege (applies only to Class A shares): ___ New Letter of Intent (if ROA or 90-day backdate privilege is applicable, provide account(s) information below.) ___ ROA with the account(s) listed below. ___ Existing Letter of Intent with the account(s) listed below. Fund name: Fund name: ____________________________________ _________________________________ Account #: Account #: ____________________________________ _________________________________
If establishing a Letter of Intent, you will need to purchase Class A shares over a 13-month period in accordance with the provisions in the Prospectus. The aggregate amount of these purchases will be at least equal to the amount indicated below (see Prospectus for minimum amount required for reduced sales charges). _______ $50,000 _______ $100,000 _______ $250,000 _______ $500,000 C. FOR DEALER USE ONLY Confirmed trade orders: ______________ ________________ __________ Confirm Number Number of Shares Trade Date 45 48 5 DISTRIBUTION OPTIONS I would like to reinvest dividends and capital gains into additional shares in this account at net asset value unless a different option is checked below. A. ___ Reinvest all dividends and capital gains into additional shares of the same class of a different Ivy fund account. Fund name: _______________________________________________________ Account #: _______________________________________________________ B. ___ Pay all dividends in cash and reinvest capital gains into additional shares of the same class in this account or a different Ivy fund account. Fund name: _______________________________________________________ Account #: _______________________________________________________ C. ___ Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT TO: _____ the address listed in the registration _____ the special payee listed in Section 7A (by mail) _____ the special payee listed in Section 7B (by EFT) 6 OPTIONAL SPECIAL FEATURES A. AUTOMATIC INVESTMENT METHOD (AIM) ___ I wish to have my bank account listed in section 7B automatically debited via EFT on a predetermined frequency and invested into my Ivy Fund account listed below. 1. Withdraw $__________ for each time period indicated below and invest my bank proceeds into the following Ivy fund: Fund name:__________________________________________________________ Share class: __ Class A __ Class B __ Class C Account #: _________________________________________________________ 2. Debit my bank account: ___ Annually (on the ___ day of the month of___________________). ___ Semiannually (on the ___ day of the months of _______________and______________). ___ Quarterly (on the ___ day of the first/second/third month of each calendar quarter). (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the ___ days ___ 3 times per month on the ___ days ___ 4 times per month on the ___ days B. SYSTEMATIC WITHDRAWAL PLANS (SWP)** ___ I wish to have my Ivy Fund account automatically debited on a predetermined frequency and the proceeds sent to me per my instructions below. 1. Withdraw ($50 minimum) $----- for each time period indicated below from the following Ivy Fund account: Fund name: ________________________________________________________ Share class: __ Class A __ Class B __ Class C Account #: ________________________________________________________ 2. Withdraw from my Ivy Fund account: ___ Annually (on the _____ day of the month of __________). ___ Semiannually (on the _____ day of the months of ______________ and ________________). ___ Quarterly (on the ____ day of the first/second/third month of each calendar quarter. (CIRCLE ONE) ___ Monthly*___ once per month on the ____day ___ twice per month on the ____ days ___ 3 times per month on the ____ days ___ 4 times per month on the ____ days 3. I request the withdrawal proceeds be: ____ sent to the address listed in the registration ____ sent to the special payee listed in section 7A or 7B. ____ invested into additional shares of the same class of a different Ivy fund: Fund name:__________________________________________________________ Account #: _________________________________________________________ Note: A minimum balance of $5,000 is required to establish a SWP. 6. OPTIONAL SPECIAL FEATURES (CONT.) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** ___ yes ___ no By checking "yes" immediately above, I authorize IMSC to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may be wire transferred to the bank account designated ($1,000 minimum). (COMPLETE SECTION 7B). D. TELEPHONE EXCHANGES** ___ yes ___ no By checking "yes" immediately above, I authorize exchanges by telephone among the Ivy funds upon instructions from any person as more fully described in the Prospectus. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone exchange privilege will be provided automatically. E. TELEPHONIC REDEMPTIONS** ___ yes ___ no By checking "yes" immediately above, the Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds are to be payable to the shareholder of record and mailed to the address of record. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone redemption privilege will be provided automatically. * There must be a period of at least seven calendar days between each investment (AIM)/withdrawal (SWP) period. ** This option may not be used if shares are issued in certificate form. 7 SPECIAL PAYEE A. MAILING ADDRESS: Please send all disbursements to this payee: Name of bank or individual ______________________________________________ Account # (if applicable) _______________________________________________ Street __________________________________________________________________ City __________________________________________ State ________ Zip ______ B. FED WIRE/EFT INFORMATION Financial institution ___________________________________________________ ABA # ___________________________________________________________________ Account # _______________________________________________________________ Street __________________________________________________________________ City _________________________________________ State _________ Zip ______ (PLEASE ATTACH A VOIDED CHECK.) 8 SIGNATURES Investors should be aware that the failure to check the "No" under Section 6D or 6E above means that the Telephone Exchange/ Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Please see "How to exchange shares" and "How to redeem shares" in the Prospectus for more information on these privileges. I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this application by reference. I am certifying my taxpayer information as stated in Section 2. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. __________________________________________ _____________________________ Signature of Owner, Custodian, Trustee or Date Corporate Officer __________________________________________ _____________________________ Signature of Joint Owner, Co-Trustee or Date Corporate Officer DETACH ON PERFORATION TO MAIL (Remember to sign Section 8) 46 49 * Symbol not assigned as of this printing. - -------------------------------------------------------------------------------- -- QUOTRON SYMBOLS AND CUSIP NUMBERS
- ------------------------------------------------------------------------------------------------ FUND SYMBOL CUSIP - ------------------------------------------------------------------------------------------------ Ivy Asia Pacific Fund - Class A IAPAX 465897494 Ivy Asia Pacific Fund - Class B IAPBX 465897486 Ivy Asia Pacific Fund - Class C IAPCX 465897478 Ivy China Region Fund - Class A IVCRX 465897866 Ivy China Region Fund - Class B ICRBX 465897858 Ivy China Region Fund - Class C ICRCX 465897643 Ivy Developing Nations Fund - Class A IVCAX 465897841 Ivy Developing Nations Fund - Class B IVCBX 465897833 Ivy Developing Nations Fund - Class C IVCCX 465897569 Ivy European Opportunities Fund - Class A * 465898815 Ivy European Opportunities Fund - Class B * 465898823 Ivy European Opportunities Fund - Class C * 465898831 Ivy European Opportunities Fund - Class I * 465898849 Ivy Global Fund - Class A MCGLX 465897742 Ivy Global Fund - Class B IVGBX 465897734 Ivy Global Fund - Class C IVGCX 465897593 Ivy Global Natural Resources Fund - Class A IGNAX 465897429 Ivy Global Natural Resources Fund - Class B IGNBX 465897411 Ivy Global Natural Resources Fund - Class C IGNCX 465897395 Ivy Global Science & Technology Fund - Class A IVTAX 465897544 Ivy Global Science & Technology Fund - Class B IVTBX 465897536 Ivy Global Science & Technology Fund - Class C IVTCX 465897528 Ivy Global Science & Technology Fund - Class I IVSIX 465897510 Ivy International Fund II - Class A IVIAX 465897353 Ivy International Fund II - Class B IIFBX 465897346 Ivy International Fund II - Class C IVIFX 465897338 Ivy International Fund II - Class I * 465897320 Ivy International Small Companies Fund - Class A IYSAX 465897460 Ivy International Small Companies Fund - Class B IYSBX 465897452 Ivy International Small Companies Fund - Class C IYSCX 465897445 Ivy International Small Companies Fund - Class I IYSIX 465897437 Ivy Pan-Europe Fund - Class A * 465897387 Ivy Pan-Europe Fund - Class B * 465897379 Ivy Pan-Europe Fund - Class C * 465897361 Ivy South America Fund - Class A IVLAX 465897825 Ivy South America Fund - Class B IVSBX 465897817 Ivy South America Fund - Class C IVSCX 465897577 - ------------------------------------------------------------------------------------------------
49 50 (Ivy Funds Logo) -- HOW TO RECEIVE MORE INFORMATION ABOUT THE FUNDS Additional information about the Funds and their investments is contained in the Funds' Statement of Additional Information dated _______, 2000 (the "SAI"), which is incorporated by reference into this Prospectus, and the Funds' annual and semiannual reports to shareholders. Each Fund's annual report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its most recent fiscal year. The SAI and the Funds' annual and semiannual reports are available upon request and without charge from the Distributor at the following address and phone number. Ivy Mackenzie Distributors, Inc. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432 800.456.5111 Information about the Funds (including the SAI and the annual and semiannual reports) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (please call 1-202-942-8090 for further details). Reports and other information about the Funds are also available on the EDGAR Database on the SEC's Internet Website (www.sec.gov), and copies of this information may be obtained, upon payment of a copying fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009. -- SHAREHOLDER INQUIRIES Please call Ivy Mackenzie Services Corp., the Funds' transfer agent, regarding any other inquiries about the Funds at 800.777.6472. www.ivymackenzie.com E-mail: invest@ivymackenzie.com Investment Company Act File No. 811-1028 01INTLX0499 51 [Ivy Funds Logo] This is your prospectus from IVY MACKENZIE DISTRIBUTORS, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 800.456.5111 ____________, 2000 INTERNATIONAL EQUITY FUNDS ADVISOR CLASS SHARES IVY ASIA PACIFIC FUND IVY CHINA REGION FUND IVY DEVELOPING NATIONS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL FUND II IVY INTERNATIONAL SMALL COMPANIES FUND IVY PAN-EUROPE FUND IVY SOUTH AMERICA FUND Ivy Fund is a registered open-end investment company consisting of twenty-one separate portfolios. This Prospectus relates to the Advisor Class shares of the eleven funds listed above (the "Funds"). The Funds also offer Class A, Class B and Class C shares (and Class I shares in the case of Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II and Ivy International Small Companies Fund), which are described in a separate prospectus. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. Investments in the Funds are not deposits of any bank and are not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. - -- CONTENTS __ Ivy Asia Pacific Fund __ Ivy China Region Fund __ Ivy Developing Nations Fund 2 Ivy European Opportunities Fund 4 Ivy Global Fund 6 Ivy Global Natural Resources Fund 8 Ivy Global Science & Technology Fund 10 Ivy International Fund II 12 Ivy International Small Companies Fund 14 Ivy Pan-Europe Fund __ Ivy South America Fund 16 Additional information about investment strategies and risks 20 Management 23 Shareholder information 27 Financial highlights 29 Account application OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, Massachusetts CUSTODIAN AUDITORS Brown Brothers Harriman & Co. _________________________ Boston, Massachusetts Fort Lauderdale, Florida TRANSFER AGENT INVESTMENT MANAGER Ivy Mackenzie Services Corp. Ivy Management, Inc. PO Box 3022 700 South Federal Highway Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432 800.777.6472 800.456.5111
[Mackenzie Logo] 52 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY ASIA PACIFIC FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY ASIA PACIFIC FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in equity securities issued in Asia Pacific countries, which include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. The Fund's management team uses a value strategy to identify companies and markets that have solid long-term growth prospects and appear to be undervalued. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the securities markets of many Asia-Pacific countries fall into this category, the Fund is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more-developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). REGIONAL RISK: Investing in the Asia-Pacific region involves special risks beyond those described above. For example, certain Asia-Pacific countries may be vulnerable to trade barriers and other protectionist measures that could have an adverse effect on the value of the Fund's portfolio. The limited size of the markets for some Asia-Pacific securities can also make them more susceptible to investor perceptions which can impact their value and liquidity. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long term growth potential in this sector of the world, but who can accept potentially dramatic fluctuations in capital value in the short-term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 2 53 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on [__________, 1998] with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 -------------------------------------------------------------------------------------------------- MSCI Far Lipper East Free Asia Pacific Advisor (Ex-Japan) (Ex-Japan) Class Index Category -------------------------------------------------------------------------------------------------- Past year................................................... ____% ____% ____% Since inception*............................................ ____% ____% ____%
*Advisor Class shares of the Fund were first sold on [________, 1998]. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)............................... none Maximum deferred sales charge (load) (as a percentage of purchase price)............................................. none Maximum sales charge (load) imposed on reinvested dividends................................................... none Redemption fee*............................................... 2.00%** Exchange fee.................................................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees............................. 1.00% Distribution and/or service (12b-1) fees...................................... none Other expenses.............................. 4.28% Total annual Fund operating expenses........ 5.28% Expenses reimbursed*........................ 3.38% Net Fund operating expenses*................ 1.90%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 193 3rd 710 5th 1,255 10th 2,742
3 54 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY CHINA REGION FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY CHINA REGION FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of companies that are located or have a substantial business presence in the China Region, which includes China, Hong Kong, Taiwan and South Korea. The Fund may also invest in equity securities of companies whose current or expected performance is considered to be strongly associated with the China Region. A large portion of the Fund is likely to be invested in equity securities of companies that trade in Hong Kong. The Fund's management team uses a value approach to find stocks it believes are undervalued relative to their long-term growth prospects. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the securities markets of many China Region countries fall into this category, the Fund may be exposed to one or more of the following additional risks: - - securities that are even less liquid and more volatile than those in more-developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). REGIONAL RISK: Mainland China may be subject to a much higher degree of economic, political and social instability than more developed countries, which could at any time result in the disruption of its principal financial markets (and to a lesser extent, those of other China Region countries). A number of China Region countries also depend heavily on international trade, which makes their securities markets particularly sensitive to the trade policies and economic conditions of their principal trading partners. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential in this sector of the world, but who can accept potentially dramatic fluctuations in capital value in the short-term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 4 55 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on February 10, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 ------------------------------------------------------------------------------------------------------------ Lipper China Hang MSCI IFC Advisor Region Seng Taiwan China Class Category Index Index Index ------------------------------------------------------------------------------------------------------------ Past year................................................... ____% ____% ____% ____% ____% Since inception*#........................................... ____% ____% ____% ____% ____%
*Advisor Class shares of the Fund were first sold on February 10, 1998. #Lipper performance is calculated from October 28, 1993. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price).................................... none Maximum deferred sales charge (load) (as a percentage of purchase price)............. none Maximum sales charge (load) imposed on reinvested dividends...................... none Redemption fee*............................. 2.00%** Exchange fee................................ none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - -----------------------------------------------------
Management fees........................... 1.00% Distribution and/or service (12b-1) fees...................................... none Other expenses............................ 2.38% Total annual Fund operating expenses...... 3.38% Expenses reimbursed*...................... 0.56% Net Fund operating expenses*.............. 2.82%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - -------------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 285 3rd 984 5th 1,706 10th 3,617
5 56 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY DEVELOPING NATIONS FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY DEVELOPING NATIONS FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of companies that are located in, or are expected to profit from, countries whose markets are generally considered to be "developing" or "emerging". The Fund may invest more than 25% of its assets in a single country, but usually will hold securities from at least three emerging market countries in its portfolio. The Fund's management team uses a value approach to find stocks it believes are undervalued relative to their long-term growth prospects. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the Fund normally invests a substantial portion of its assets in these countries, it is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more-developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential in the developing nations sector, but who can accept potentially dramatic fluctuations in capital value in the short-term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 6 57 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on April 30, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 ----------------------------------------------------------------------------------------------------------- MSCI IFC Morningstar Emerging Emerging Emerging Advisor Markets Markets Markets Class Free Index Index Universe ----------------------------------------------------------------------------------------------------------- Past year................................................... _____% _____% _____% _____% Since inception*............................................ _____% _____% _____% _____%
*Advisor Class shares of the Fund were first sold on April 30, 1998. - -- FEES AND EXPENSES: The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - ------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)............................... none Maximum deferred sales charge (load) (as a percentage of purchase price)............................................. none Maximum sales charge (load) imposed on reinvested dividends................................................... none Redemption fee*............................................... 2.00%** Exchange fee.................................................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- Management fees.......................... 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 1.97% Total annual Fund operating expenses..... 2.97% Expenses reimbursed*..................... 1.29% Net Fund operating expenses*............. 1.68%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - -------------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 171 3rd 644 5th 1,145 10th 2,522
7 58 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY EUROPEAN OPPORTUNITIES FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY EUROPEAN OPPORTUNITIES FUND - -- INVESTMENT OBJECTIVE The Fund's investment objective is long-term capital growth by investing in the securities markets of Europe. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in the equity securities of European companies, which may include: - - large European companies, or European companies of any size that provide special investment opportunities (such as privatized companies, those providing exceptional value, or those engaged in initial public offerings); - - small-capitalization companies in the more developed markets of Europe; and - - companies operating in Europe's emerging markets. The Fund may also invest in European debt securities, up to 20% of which may be low-rated (commonly referred to as "high yield" or "junk" bonds). The Fund's manager uses a "bottom-up" investment approach, focusing on prospects for long term earnings growth. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment, even where "management risk" is not a factor. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Certain of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could weaken the Fund's returns if the issuer defaults on its payment obligations. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. 8 59 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EURO CONVERSION RISK: On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, the Fund could experience investment losses. -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. -- PERFORMANCE INFORMATION The Fund has been operating for less than a year, so no performance information is available. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - -----------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................................... none Maximum deferred sales charge (load) (as a percentage of purchase price).......... none Maximum sales charge (load) imposed on reinvested dividends..................... none Redemption fee*.......................... none Exchange fee............................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees.......................... 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 0.95% Total annual Fund operating expenses*.... 1.95%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ------------- YEAR - ------------- 1st $198 3rd 726 5th ____ 10th ____
9 60 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GLOBAL FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY GLOBAL FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term capital growth. Any income realized will be incidental. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of companies in at least three different countries, including the United States. The Fund might engage in foreign currency exchange transactions and forward foreign currency contracts to control its exposure to certain risks. The Fund's management team uses a disciplined value approach while looking for investment opportunities around the world. The Fund is expected to have some emerging markets exposure in an attempt to achieve higher returns over the long term. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. Since the Fund may invest a substantial portion of its assets in these countries, it is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange rate regime or monetary policy; - - unusually large currency fluctuations and currency conversion costs; and - - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept significant fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 10 61 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on April 30, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 ---------------------------------------------------------------------------------------------------- Advisor World EAFE EMF Class Index Index Index ---------------------------------------------------------------------------------------------------- Past year................................................... ____% ____% ____% ____% Since inception*#........................................... ____% ____% ____% ____%
*Advisor Class shares of the Fund were first sold on April 4, 1998. #Index performance is calculated from April 30, 1991. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - -----------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a percentage of offering price).................................... none Maximum deferred sales charge (load) (as a percentage of purchase price)............. none Maximum sales charge (load) imposed on reinvested dividends...................... none Redemption fee*........................... none Exchange fee.............................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees*......................... 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 1.11% Total annual Fund operating expenses..... 2.11% Expenses reimbursed**.................... 0.36% Net Fund operating expenses**............ 1.75%
*Management fees are reduced to 0.75% for net assets over $500 million. **The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 178 3rd 666 5th 1,180 10th 2,593
11 62 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GLOBAL NATURAL RESOURCES FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY GLOBAL NATURAL RESOURCES FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth. Any income realized will be incidental. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in equity securities. The Fund's manager seeks to maximize the Fund's returns by seeking out natural resources companies of any size with strong management and financial positions, adding balance with established low cost, low debt producers and positions that are based on anticipated commodity price trends. For these purposes, "natural resources" generally include: - - precious metals (such as gold, silver and platinum); - - ferrous and nonferrous metals (such as iron, aluminum, copper and steel); - - strategic metals (such as uranium and titanium); - - fossil fuels and chemicals; - - forest products and agricultural commodities; and - - undeveloped real property. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. NATURAL RESOURCES AND PHYSICAL COMMODITIES RISK: Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including: - - price fluctuations caused by real and perceived inflationary trends and political developments; and - - the costs assumed by natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations, such as: - - potentially severe price fluctuations over short periods of time; - - storage costs that can exceed the custodial and/or brokerage costs associated with the Fund's other portfolio holdings. INDUSTRY-CONCENTRATION RISK: Since the Fund can invest a significant portion of its assets in securities of companies engaged in natural resources activities, the Fund could experience wider fluctuations in value than funds with more diversified portfolios. FOREIGN SECURITY RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept potentially dramatic fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 12 63 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on [___________, 1998] with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL for the periods ending TOTAL RETURNS December 31, 1999 ------------------------------------------------------------------------------------ MSCI Commodity- Advisor Related Class Index ---------------------------------------------------------------------------------- Past year................................................... ____% ____% Since inception*............................................ ____% ____%
*Advisor Class shares of the Fund were first sold on [_______, 1998]. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - -------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a percentage of offering price)...................................................... none Maximum deferred sales charge (load) (as a percentage of purchase price)............................................. none Maximum sales charge (load) imposed on reinvested dividends................................................... none Redemption fee*............................................. none Exchange fee................................................ none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees.......................... 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 4.50% Total annual Fund operating expenses..... 5.50% Expenses reimbursed*..................... 3.53% Net Fund operating expenses*............. 1.97%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 200 3rd 732 5th 1,291 10th 2,814
13 64 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GLOBAL SCIENCE & TECHNOLOGY FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY GLOBAL SCIENCE & TECHNOLOGY FUND - -- INVESTMENT OBJECTIVE The Fund's investment objective is long-term capital growth. Any income realized will be incidental. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in equity securities of companies throughout the world that are expected to profit from the development, advancement and use of science and technology. Industries that are likely to be represented in the Fund's portfolio holdings include: - - Internet; - - telecommunications and networking equipment; - - semiconductors and semiconductor equipment; - - software; - - computers and peripherals; - - electronic manufacturing services; and - - telecommunications and information services. The Fund's management team believes that technology is a fertile growth area, and actively seeks to position the Fund to benefit from this growth by investing in companies of any size that may deliver rapid earnings growth and potentially high returns, which may include the purchase of stock in companies engaged in initial public offerings. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Many of the companies in which the Fund may invest have relatively small market capitalizations. Securities of smaller-companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be thinly traded because they are subject to greater business risk. Transaction costs in smaller-company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). INDUSTRY-CONCENTRATION RISK: Since the Fund focuses its investments in securities of companies engaged in the science and technology industries, the Fund could experience wider fluctuations in value than funds with more diversified portfolios. For example, rapid advances in these industries tend to cause existing products to become obsolete, and the Fund's returns could suffer to the extent it holds an affected company's shares. Companies in a number of science and technology industries are also subject to government regulations and approval processes that may affect their overall profitability and cause their stock prices to be more volatile. FOREIGN SECURITY RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with new or developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept significant fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 14 65 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on April 15, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL for the periods ending TOTAL RETURNS December 31, 1999 - ------------------------------------------------------------------------------------ Russell 2000 Advisor Technology Class Index - -------------------------------------------------------------------------------------- Past year................................................... _____% _____% Since inception*#........................................... _____% _____%
*Advisor Class shares of the Fund were first sold on April 15, 1998. #Index performance is calculated from July 30, 1996. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - -----------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................................... none Maximum deferred sales charge (load) (as a percentage of purchase price........... none Maximum sales charge (load) imposed on reinvested dividends..................... none Redemption fee*.......................... none Exchange fee............................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees.......................... 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 1.18% Total annual Fund operating expenses..... 2.18%
- ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ------------------ YEAR - ------------------ 1st $ 221 3rd 682 5th 1,169 10th 2,513
15 66 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND II - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY INTERNATIONAL FUND II - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at least 65% of its assets in equity securities principally traded in European, Pacific Basin and Latin American markets. To control its exposure to certain risks, the Fund might engage in foreign currency exchange transactions and forward foreign currency contracts. The Fund's manager uses a disciplined value approach while looking for investment opportunities around the world. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 16 67 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on February 23, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 ------------------------------------------------------------------------------------------------------------------ Morningstar Lipper Category for Category for Advisor MSCI EAFE International International Class Index Stock Funds Stock Funds ------------------------------------------------------------------------------------------------------------------ Past year................................................... _____% _____% _____% _____% Since inception*#........................................... _____% _____% _____% _____%
*Advisor Class shares of the Fund were first sold on February 23, 1998. #MSCI EAFE Index performance is calculated from May 30, 1997. Morningstar performance is calculated from June 1, 1997. Lipper performance is calculated from May 15, 1997. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - -----------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a percentage of offering price).................................... none Maximum deferred sales charge (load) (as a percentage of purchase price)............. none Maximum sales charge (load) imposed on reinvested dividends...................... none Redemption fee*........................... none Exchange fee.............................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees.......................... 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 0.45% Total annual Fund operating expenses..... 1.45% Expenses reimbursed*..................... 0.13% Net Fund operating expenses*............. 1.32%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.50% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 134 3rd 628 5th 1,149 10th 2,579
17 68 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL SMALL COMPANIES FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY INTERNATIONAL SMALL COMPANIES FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the common stock of foreign issuers having total initial market capitalization of less than $2 billion. The Fund may purchase stock in companies engaged in initial public offerings. The Fund might also engage in foreign currency exchange transactions and forward foreign currency contracts to control its exposure to certain risks. The Fund is managed by a team that focuses on both value and growth factors. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since they tend to be thinly traded and because the companies are subject to greater business risk. Transaction costs in smaller-company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept significant fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 18 69 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on [__________, 1998] with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL for the periods ending TOTAL RETURNS December 31, 1999 -------------------------------------------------------------------------------------- HSBC James Capel World Advisor (Ex-U.S.) Small Class Company Index -------------------------------------------------------------------------------------- Past year................................................... ____% ____% Since inception*............................................ ____% ____%
*Advisor Class shares of the Fund were first sold on [_________, 1998]. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - -------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a percentage of offering price)............................... none Maximum deferred sales charge (load)(as a percentage of purchase price)............................................. none Maximum sales charge (load) imposed on reinvested dividends................................................... none Redemption fee*............................................. none Exchange fee................................................ none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees......................... 1.00% Distribution and/or service (12b-1) fees.................................... none Other expenses.......................... 4.88% Total annual Fund operating expenses.... 5.88% Expenses reimbursed*.................... 3.91% Net Fund operating expenses*............ 1.97%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE: The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 200 3rd 731 5th 1,289 10th 2,810
19 70 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY PAN-EUROPE FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY PAN-EUROPE FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of large and medium-sized European companies. The Fund's management team uses a disciplined value approach while looking for investment opportunities around the world. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. EURO CONVERSION RISKS: On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put in circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, the Fund could experience investment losses. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 20 71 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on March 23, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 ---------------------------------------------------------------------------------------------------- Morningstar Advisor MSCI Europe Europe Stock Class Index Universe ---------------------------------------------------------------------------------------------------- Past year................................................... ____% ____% ____% Since inception*#........................................... ____% ____% ____%
*Advisor Class shares of the Fund were first sold on March 23, 1998. #MSCI Europe Index performance is calculated from May 30, 1997. Morningstar performance is calculated from June 1, 1997. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - -----------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................................... none Maximum deferred sales charge (load)(as a percentage of purchase price)............ none Maximum sales charge (load) imposed on reinvested dividends..................... none Redemption fee*.......................... none Exchange fee............................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------
Management fees.......................... 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 4.48% Total annual Fund operating expenses..... 5.48% Expenses reimbursed*..................... 3.37% Net Fund operating expenses*............. 2.11%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 214 3rd 774 5th 1,360 10th 2,950
21 72 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY SOUTH AMERICA FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY SOUTH AMERICA FUND - -- INVESTMENT OBJECTIVE The Fund's principal objective is long-term growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in equity securities and government and corporate debt securities issued throughout South America, Central America and the Spanish-speaking islands of the Caribbean. The Fund is likely to have significant investments in Argentina, Brazil, Chile, Colombia, Peru and Venezuela. The Fund may invest in low rated debt securities to increase its potential yield. The Fund's management team uses a value approach to find stocks it believes are undervalued relative to their long-term growth prospects or underlying asset values. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Many of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could significantly weaken the Fund's returns if the issuer defaults on its payment obligations. NON-DIVERSIFICATION RISK: The Fund is classified as "non-diversified" under the Investment Company Act of 1940, and may therefore invest a greater percentage of its assets in a particular issuer than a "diversified" fund. As a result, the Fund may also be more susceptible than a diversified fund to the price movements of certain securities it holds in its portfolio. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies, which characterizes many of the countries in which the Fund may invest. As a result, the Fund is exposed to the following additional risks: - - securities that are even less liquid and more volatile than those in more-developed foreign countries; - - unusually long settlement delays; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of 22 73 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - abrupt changes in exchange-rate regime or monetary policy; - - unusually large currency fluctuations and currency-conversion costs; and - - high national-debt levels (which may impede an issuer's payment of principal and/or interest on external debt). REGIONAL RISK: The securities markets of certain Latin American countries are substantially smaller, less developed, less liquid and more volatile than major securities markets elsewhere in the world. For example, the limited market size for a number of the Fund's portfolio holdings makes their prices vulnerable to investor perceptions and traders who control large positions. Some Latin American countries have also experienced unusually high inflation rates. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long term growth potential in this sector of the world, but who can accept potentially dramatic fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 23 74 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY SOUTH AMERICA FUND - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on [___________, 1998] with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 ------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99: ___% Worst quarter ___'99: ___%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 ------------------------------------------------------------------------------------------------------- MSCI EMF Latin MSCI MSCI Advisor America Brazil Argentina Class Index Index Index ------------------------------------------------------------------------------------------------------- Past year................................................... _____% _____% _____% _____% Since inception*............................................ _____% _____% _____% _____%
*Advisor Class shares of the Fund were first sold on [___________, 1998]. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price).................................... none Maximum deferred sales charge (load) (as a percentage of purchase price)............. none Maximum sales charge (load) imposed on reinvested dividends...................... none Redemption fee*............................. 2.00%** Exchange fee................................ none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. **Deducted from net proceeds on shares redeemed (or exchanged) within one month after purchase. This fee is retained by the Fund. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- Management fees............................ 1.00% Distribution and/or service (12b-1) fees..................................... none Other expenses............................. 3.64% Total annual Fund operating expenses....... 4.64% Expenses reimbursed*....................... 2.71% Net Fund operating expenses*............... 1.93%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $ 196 3rd 720 5th 1,271 10th 2,775
24 75 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS - -- PRINCIPAL STRATEGIES IVY ASIA PACIFIC FUND: The Fund seeks to achieve its investment objective of long-term growth by investing primarily in securities issued in countries throughout the Asia-Pacific region, which includes China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. The Fund usually invests in at least three different countries, and does not intend to concentrate its investments in any particular industry. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY CHINA REGION FUND: The Fund seeks to achieve its investment objective of long-term capital growth primarily by investing in the equity securities of companies that are expected to profit from the economic development and growth of the China Region through a direct business connection (such as an exchange listing or significant profit base) in one or more China Region countries. The Fund may invest more than 25% of its assets in the securities of issuers in a single China Region country, and could have significantly more than 50% of its assets invested in Hong Kong. The Fund expects to invest the balance of its assets in the equity securities of companies whose current or expected performance is considered to be strongly associated with the China Region. The Fund's management team seeks to reduce risk by focusing on companies with strong foreign joint venture partners, well-positioned consumer franchises or monopolies, or that operate in strategic or protected industries. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY DEVELOPING NATIONS FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies that the Fund's manager believes will benefit from the economic development and growth of emerging markets. The Fund considers an emerging market country to be one that is generally viewed as "developing" or "emerging" by the World Bank, the International Finance Corporation or the United Nations. The Fund usually invests its assets in at least three different emerging market countries, and may invest at least 25% of its assets in the securities of issuers located in a single country. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY EUROPEAN OPPORTUNITIES FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies located or otherwise doing business in European countries and covering a broad range of economic and industry sectors. The Fund may also invest a significant portion of its assets in debt securities, up to 20% of which is considered below investment grade (commonly referred to as "high yield" or "junk" bonds). The Fund's manager follows a "bottom-up" approach to investing, which focuses on prospects for long-term earnings growth. Company selection is generally based on an analysis of a wide range of financial indicators (such as growth, earnings, cash, book and enterprise value), as well as factors such as market position, competitive advantage and management strength. Country and sector allocation decisions are driven by the company selection process. IVY GLOBAL FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies throughout the world. The Fund invests in a variety of economic sectors, industry segments and individual securities to reduce the effects of price volatility in any one area, and normally invests its assets in at least three different countries (including the United States). Countries are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY GLOBAL NATURAL RESOURCES FUND: The Fund seeks to achieve its principal objective of long-term growth by investing primarily in the equity securities of companies throughout the world that own, explore or develop natural resources and other basic commodities (or that supply goods and services to such companies). The Fund's manager targets for investment well managed companies that are expected to increase shareholder value through successful exploration and development of natural resources, balancing the Fund's portfolio with low cost, low debt producers that have outstanding asset bases, and positions that are based on anticipated commodity price trends. Additional emphasis is placed on sectors that are out of favor but appear to offer the most significant recovery potential over a one to three year period. All investment decisions are reviewed systematically and cash reserves may be allowed to build up when valuations seem unattractive. The manager attempts to minimize risk through diversifying the Fund's portfolio by commodity, country, issuer and asset class. Typically the Fund's top 50 investments comprise more than 80% of the Fund's assets. IVY GLOBAL SCIENCE & TECHNOLOGY FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in the common stock of companies that are expected to benefit from the development, advancement and use of science and technology. The Fund may also invest in companies that are expected to benefit indirectly from the commercialization of technological and scientific advances. Industries likely to be represented in the Fund's overall portfolio holdings include Internet, computers and peripheral products, software, electronic components and systems, telecommunications, and media and information services. Rapid advances in these industries in recent years have stimulated unprecedented growth. While this is no guarantee of future performance, the Fund's management team believes that these industries offer substantial opportunities for long-term capital appreciation. The Fund intends to invest its assets in at least three different countries, but may at any given time have a substantial portion of its assets invested in the United States. IVY INTERNATIONAL FUND II: The Fund seeks to achieve its principal objective of long-term capital growth by investing in equity securities principally traded in European, Pacific Basin and Latin American markets. The Fund invests in a variety of 25 76 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- economic sectors and industry segments to reduce the effects of price volatility in any one area. The Fund's manager seeks out rapidly expanding foreign economies and companies that generally have at least $1 billion in capitalization at the time of investment and a solid history of operations. Other factors that the Fund's manager considers in selecting particular countries include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY INTERNATIONAL SMALL COMPANIES FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in the foreign stock markets, focusing on issuers that are valued at less than $2 billion across a wide range of geographic, economic and industry sectors. Countries are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. Approximately one half of the Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased under this approach are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. The other half of the Fund's portfolio is managed using a "bottom-up" approach, which focuses on prospects for long-term earnings growth. Company selection for this segment of the Fund is generally based on an analysis of a wide range of financial indicators (such as growth, earnings, cash, book and enterprise value), as well as factors such as market position, competitive advantage and management strength. Country and sector allocation decisions for this segment are driven by the company selection process. IVY PAN-EUROPE FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies located or otherwise doing business in European countries and that cover a broad range of economic and industry sectors. The Fund may also invest a significant portion of its assets outside of Europe. Countries are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. IVY SOUTH AMERICA FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the securities markets of South America and Central America. The Fund normally invests its assets in at least three different countries, and expects to focus its investments in Argentina, Brazil, Chile, Colombia, Peru and Venezuela. The Fund's holdings are concentrated in high-quality companies, selected for both their defensive strengths and long-term prospects. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities. The Fund does not expect to concentrate its investments in any particular industry. The Fund may, however, invest more than 5% of a portion of its assets in a single issuer (see "Non-diversification risk" on page _). ALL FUNDS: Each Fund may from time to time take a temporary defensive position and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short-term notes and other money market securities. When a Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk. - -- PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of a Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. Each Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in a Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: The table on the following page identifies the investment techniques that each Fund's advisor considers important in achieving the Fund's investment objective or in managing its exposure to risk (and that could therefore have a significant effect on a Fund's returns). Following the table is a description of the general risk characteristics of these investment techniques. Other investment methods that the Funds may use (such as derivative investments), but that are not likely to play a key role in their overall investment strategies, are described in the Funds' Statement of 26 77 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- Additional Information (see back cover page for information on how you can receive a free copy).
- -------------------------------------------------------------------------------------------------- INVESTMENT TECHNIQUE: IAPF ICEF IDNF IEOF IGF IGNRF IGSTF IIF2 IISCF IPEF ISAF - -------------------------------------------------------------------------------------------------- Common stocks........ X X X X X X X X X X X Debt securities...... X X Low-rated debt securities........... X X Foreign securities... X X X X X X X X X X X Emerging markets..... X X X X X X X X X X X Foreign currencies... X X X X X X X X X X X Depository receipts.. X X X X X X X X X X X Derivatives.......... X X X X X X Illiquid securities........... X X X X X X X X X X X Precious metals...... X Borrowing............ X X X X X X X X X X X Temporary defensive positions............ X X X X X X X X X X X
RISK CHARACTERISTICS: - - EQUITY SECURITIES: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller-company securities may also be higher than those of larger companies. Investors in Ivy European Opportunities Fund, Ivy Global Science & Technology Fund and Ivy International Small Companies Fund should note that these risks are heightened in the case of securities issued through IPOs. - - DEBT SECURITIES, IN GENERAL: Investing in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. For example, as interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. A Fund's portfolio is therefore susceptible to the decline in value of the debt instruments it holds in a rising interest rate environment. The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Bonds with longer maturities tend to be more volatile than bonds with shorter maturities. Ivy South America Fund may have significant holdings in sovereign debt. For a variety of reasons (such as cash flow problems, limited foreign reserves, and political constraints), the governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal or interest when due. A governmental entity's ability to honor its debt obligations to the Fund may also be contingent on its receipt from others (such as the International Monetary Fund and more solvent foreign governments) of specific disbursements, which may in turn be conditioned on the perceived health of the governmental entity's economy and/or its implementation of economic reforms. If any of these conditions fail, the Fund could lose the entire value of its investment for an indefinite period of time. - - LOW-RATED DEBT SECURITIES: In general, low-rated debt securities (commonly referred to as "high yield" or "junk" bonds) offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. For this reason, these bonds are considered speculative and could significantly weaken a Fund's returns. - - FOREIGN SECURITIES: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect a Fund's performance favorably or unfavorably, depending upon prevailing conditions at any given time. For example, the securities markets of many foreign countries may be smaller, less liquid and subject to greater price volatility than those in the U.S. Foreign investing may also involve brokerage costs and tax considerations that are not usually present in the U.S. markets. Many of the Funds' securities also are denominated in foreign currencies and the value of each Fund's investments, as measured in U.S. dollars, may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations. Currency conversions can also be costly. Other factors that can affect the value of a Fund's foreign investments include the comparatively weak supervision and regulation by some foreign governments of securities exchanges, brokers and issuers, and the fact that many foreign companies may not be subject to uniform accounting, auditing and financial reporting standards. It may also be difficult to obtain reliable information about the securities and business operations of certain foreign issuers. Settlement of portfolio transactions may also be delayed due to local restrictions or communication problems, which can cause a Fund to miss attractive investment opportunities or impair its ability to dispose of securities in a timely fashion (resulting in a loss if the value of the securities subsequently declines). - - SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities are heightened in countries with new or developing economies. Among these additional risks are the following: - securities that are even less liquid and more volatile than those in more developed foreign countries; 27 78 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - increased settlement delays; - unusually high inflation rates (which in extreme cases can cause the value of a country's assets to erode sharply); - unusually large currency fluctuations and currency conversion costs; and - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). FOREIGN CURRENCIES: Foreign securities may be denominated in foreign currencies, and the value of a Fund's investments, as measured in U.S. dollars, may be harmed by changes in foreign currency exchange rates and exchange control regulations. Currency conversions can also be costly. - - DEPOSITORY RECEIPTS: Interests in foreign issuers may be acquired in the form of sponsored or unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and similar types of depository receipts. ADRs typically are issued by a U.S. bank or trust company and represent ownership of the underlying securities issued by a foreign corporation. GDRs and other types of depository receipts are usually issued by foreign banks or trust companies. The investing Fund's investments in ADRs, GDRs and other depository receipts are viewed as investments in the underlying securities. Depository receipts can be difficult to price and are not always exchange-listed. Unsponsored depository programs also are organized independently without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. - - DERIVATIVE INVESTMENT TECHNIQUES: A Fund may, but is not required to, use certain derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates and broad or specific market movements) or to enhance potential gain. Among the derivative techniques a Fund might use are options, futures, forward foreign currency contracts and foreign currency exchange transactions. Using put and call options could cause a Fund to lose money by forcing the sale or purchase of portfolio securities at inopportune times or for prices higher (in the case of put options) or lower (in the case of call options) than current market values, by limiting the amount of appreciation the Fund can realize on its investments, or by causing the Fund to hold a security it might otherwise sell. Futures transactions (and related options) involve other types of risks. For example, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of a Fund could cause losses on the hedging instrument that are greater than gains in the value of the Fund's position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, a Fund might not be able to close out a transaction before expiration without incurring substantial losses (and it is possible that the transaction cannot even be closed). In addition, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Foreign currency exchange transactions and forward foreign currency contracts involve a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the adviser's judgment as to certain market movements is incorrect, the risk of losses that are greater than if the investment technique had not been used. For example, changes in currency exchange rates may result in poorer overall performance for a Fund than if it had not engaged in such transactions. There may also be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. An imperfect correlation of this type may prevent a Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. In addition, although the use of these investment techniques for hedging purposes should tend to minimize the risk of loss due to a decline in the value of the hedged position, they also tend to limit any potential gain that might result from an increase in the position's value. - - ILLIQUID SECURITIES: "Illiquid securities" are assets that may not be disposed of in the ordinary course of business within seven days at roughly the value at which the investing fund has valued the assets. These may be "restricted securities," which cannot be sold to the public without registration under the Securities Act of 1933 (in the absence of an exemption) or because of other legal or contractual restrictions on resale. Thus, while illiquid securities may 28 79 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- offer the potential for higher returns than more readily marketable securities, there is a risk that the investing fund will not be able to dispose of them promptly at an acceptable price. - - PRECIOUS METALS AND OTHER PHYSICAL COMMODITIES: Ivy Global Natural Resources Fund can invest in precious metals and other physical commodities. Commodities trading is generally considered speculative because of the significant potential for investment loss. Among the factors that could affect the value of the Fund's investments in commodities are cyclical economic conditions, sudden political events and adverse international monetary policies. Markets for precious metals and other commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. The Fund may also pay more to store and accurately value its commodity holdings than it does with its other portfolio investments. - - BORROWING: For temporary or emergency purposes, Ivy China Region Fund, Ivy Global Fund, Ivy Global Science & Technology Fund and Ivy International Fund II may each borrow up to 10% of the value of its total assets from qualified banks. Ivy Asia Pacific Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy International Small Companies Fund, Ivy Pan-Europe Fund and Ivy South America Fund may each borrow up to one third of the value of their total assets from qualified banks, but (with the exception of Ivy European Opportunities Fund) will not buy securities whenever its outstanding borrowings exceed 10% of the value of its total assets. Borrowing may exaggerate the effect on a Fund's share value of any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. - -- OTHER IMPORTANT INFORMATION EUROPEAN MONETARY UNION: On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, a Fund could experience investment losses. MANAGEMENT - -- INVESTMENT ADVISOR Ivy Management, Inc.("IMI") Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 IMI provides business management services to the Funds and investment advisory to all Funds other than Ivy Global Natural Resources Fund. IMI is an SEC-registered investment advisor with over $5 billion in assets under management, and provides similar services to the other ten series of Ivy 29 80 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fund. For the Funds' fiscal year ending December 31, 1999, the Funds (other than Ivy European Opportunities Fund) each paid IMI a fee that was equal to 1.00% of the Funds' respective average net assets. Ivy European Opportunities Fund pays IMI a fee at the rate of 1.00% of the Fund's average net assets. Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue, London, England EC2M 2PA, serves as subadviser to Ivy European Opportunities Fund under an Agreement with IMI. For its services, Henderson receives a fee from IMI that is equal, on an annual basis, to 0.50% of the Fund's average net assets. Since February 1, 1999, Henderson has served as subadviser with respect to 50% of the net assets of Ivy International Small Companies Fund, for which Henderson receives a fee from IMI that is equal, on an annual basis, to 0.50% of that portion of the Fund's assets that Henderson manages. Henderson is an indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance and financial services company located in New South Wales, Australia. Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S 3B5, serves as the investment adviser to Ivy Global Natural Resources Fund and is responsible for selecting the Fund's portfolio investments. MFC has been an investment counsel and mutual fund manager in Toronto for more than 30 years, and as of _______, 2000 had over $17.8 billion in assets under management. For the Fund's fiscal year ending December 31, 1999, the Fund paid to MFC an aggregate fee equal to 0.50% of the Fund's average net assets. - -- PORTFOLIO MANAGEMENT IVY ASIA PACIFIC FUND, IVY CHINA REGION FUND, IVY DEVELOPING NATIONS FUND, IVY GLOBAL FUND, IVY INTERNATIONAL FUND II, IVY PAN-EUROPE FUND AND IVY SOUTH AMERICA FUND: Each Fund is managed by a team of investment professionals that is supported by research analysts who acquire information on regional and country-specific economic and political developments and monitor individual companies. These analysts use a variety of research sources that include: - - brokerage reports; - - economic and financial news services; - - company reports; and - - information from third-party research firms (ranging from large investment banks with global coverage to local research houses). In many cases, particularly in emerging market countries, IMI's research analysts also conduct primary research by: - - meeting with company management; - - touring facilities; and - - speaking with local research professionals. IVY EUROPEAN OPPORTUNITIES FUND: Stephen Peak, Executive Director of Henderson and head of Henderson's European equities team, is primarily responsible for selecting the Fund's portfolio of investments. Formerly a director and portfolio manager with Touche Remnant & Co., Mr. Peak has 25 years of investment experience. IVY GLOBAL NATURAL RESOURCES FUND: Frederick Sturm, a Senior Vice President of MFC, has managed the Fund since its inception. Mr. Sturm joined MFC in 1983 and has 15 years of professional investment experience. He is a Chartered Financial Analyst and holds a graduate degree in commerce and finance from the University of Toronto. IVY GLOBAL SCIENCE & TECHNOLOGY FUND: The Fund is managed by IMI's Global Technology Team. James W. Broadfoot, President of IMI and a Vice President of Ivy Fund, is the Team's lead manager. Before joining IMI in 1990, Mr. Broadfoot was the principal in an investment counsel firm specializing in emerging growth companies. He has over 25 years of professional investment experience, holds an MBA from the Wharton School of Business and is a Chartered Financial Analyst. 30 81 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- IVY INTERNATIONAL SMALL COMPANIES FUND: The Fund is managed using a team approach. IMI's international equity team is comprised of investment professionals and is supported by research analysts who acquire information on regional and country-specific economic and political developments and monitor individual companies. These analysts use a variety of research sources that include: - - brokerage reports; - - economic and financial news services; - - company reports; and - - information from third party research firms (ranging from large investment banks with global coverage to local research houses). In many cases, particularly in emerging market countries, IMI's research analysts also conduct primary research by: - - meeting with company management; - - touring facilities; and - - speaking with local research professionals. The Henderson team's investment process combines top down regional allocation with a bottom up stock selection approach. Regional allocations are based on factors such as interest rates and current economic cycles, which are used to identify economies with relatively strong prospects for real economic growth. Individual stock selections are based largely on prospects for earnings growth. 31 82 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHAREHOLDER INFORMATION - -- PRICING OF FUND SHARES Each Fund calculates its share price by dividing the value of the Fund's net assets by the total number of its shares outstanding as of the close of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the Exchange is open for trading (normally any weekday that is not a national holiday). Each portfolio security that is listed or traded on a recognized stock exchange is valued at the security's last quoted sale price on the exchange on which it is principally traded. If no sale is reported at that time, the average between the last bid and asked prices is used. Securities and other Fund assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Funds' Board of Trustees. IMI may also price a foreign security at its fair value if events materially affecting the estimated value of the security occur between the close of the foreign exchange on which the security is principally traded and the time as of which a Fund prices its shares. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of a Fund in an attempt to profit from short-term market movements. When such fair-value pricing occurs, however, there may be some period of time during which a Fund's share price and/or performance information is not available. The number of shares you receive when you place a purchase or exchange order, and the payment you receive after submitting a redemption request, is based on a Fund's net asset value next determined after your instructions are received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent) or by your registered securities dealer. Since the Funds normally invest in securities that are listed on foreign exchanges that may trade on weekends or other days when the Funds do not price their shares, each Fund's share value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. - -- HOW TO BUY SHARES Please read these sections below carefully before investing. Advisor Class shares are offered through this Prospectus only to the following investors: - - trustees or other fiduciaries purchasing shares for employee benefit plans that are sponsored by organizations that have at least 1,000 employees; - - any account with assets of at least $10,000 if (a) a financial planner, trust company, bank trust department or registered investment adviser has investment discretion, and where the investor pays such person as compensation for his advice and other services an annual fee of at least .50% on the assets in the account, or (b) such account is established under a "wrap fee" program and the account holder pays the sponsor of the program an annual fee of at least 0.50% on the assets in the account; - - officers and Trustees of the Ivy Fund (and their relatives); - - directors or employees of Mackenzie Investment Management Inc. or its affiliates; - - directors, officers, partners, registered representatives, employees and retired employees (and their relatives) of dealers having a sales agreement with IMDI (or trustees or custodians of any qualified retirement plan or IRA established for the benefit of any such person.) The following investment minimums, sales charges and expenses apply. - -------------------------------------------------- Minimum initial investment*.............. $10,000 Minimum subsequent investment*........... $250 Initial sales charge..................... none CDSC..................................... none Service and distribution fees............ none
*Minimum initial and subsequent investments for retirement plans are $25. - -- SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the end of this Prospectus. Enclose a check payable to the 32 83 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- Fund in which you wish to invest. You should note on the check that you wish to invest in Advisor Class shares (see page 23 for minimum initial investments.) Deliver your application materials to your registered representative or selling broker, or send them to one of the addresses below: - - BY REGULAR MAIL: Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 - -BY COURIER: Ivy Mackenzie Services Corp. 700 South Federal Hwy. Boca Raton, FL 33432-6114 - -- BUYING ADDITIONAL SHARES There are several ways to increase your investment in a Fund: - - BY MAIL: Send your check with a completed investment slip (attached to your account statement) or written instructions indicating the account registration, Fund number or name, and account number. Mail to one of the addresses above. - - THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. - - BY WIRE: Purchases may also be made by wiring money from your bank account to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call IMSC at 800.777.6472. Wiring instructions are as follows: First Union National Bank of Florida Jacksonville, FL ABA #063000021 Account #2090002063833 For further credit to: Your Account Registration Your Fund Number and Account Number - - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Ivy Fund account. Complete sections 6A and 6B of the Account Application. - -- HOW TO REDEEM SHARES SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your registered securities dealer or directly through IMSC. If you choose to redeem through your registered securities dealer, the dealer is responsible for properly transmitting redemption orders in a timely manner. If you choose to redeem directly through IMSC, you have several ways to submit your request: - - BY MAIL: Send your written redemption request to IMSC at one of the addresses at left. Be sure that all registered owners listed on the account sign the request. Medallion signature guarantees and supporting legal documentation may be required. When you redeem, IMSC will normally send redemption proceeds to you on the next business day, but may take up to seven days (or longer in the case of shares recently purchased by check). - - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or custodial account. To process your redemption order by telephone, you must have telephone redemption privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. - - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds electronically drawn each month from your Ivy Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. 33 84 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: - - BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. - - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. - - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. REDEMPTION FEE: Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund and Ivy South America Fund can experience substantial price fluctuations and are intended for long-term investors. Redemption fees for the Funds are intended to encourage long-term investment, to avoid transaction and other expenses caused by early redemptions, and to facilitate portfolio management. This fee may be waived at the discretion of IMSC. Effective June 1, 1999, the Funds may charge a 2.00% fee for redemptions or exchanges that occur within one month of the date of purchase. This fee is not a CDSC, is not a commission, and does not benefit IMI or IMSC in any way. The redemption fee will be assessed on the net asset value of the shares redeemed or exchanged and will be deducted from the redemption proceeds otherwise payable to the shareholder. Each Fund will retain any fee charged. OTHER IMPORTANT REDEMPTION INFORMATION: - - If you own shares of more than one class of a Fund, the Fund will redeem first the shares having the highest 12b-1 fees, unless you instruct otherwise. - - A Fund may (on 60 days' notice) redeem the accounts of shareholders whose investment, including sales charges paid, has been less than $1,000 for more than 12 months. - - A Fund may take up to seven days (or longer in the case of shares recently purchased by check) to send redemption proceeds. - -- HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of another Ivy fund, subject to certain restrictions (see "Important exchange information"). SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as follows: - - BY MAIL: Send your written exchange request to IMSC at one of the addresses on page 24 of this Prospectus. Be sure that all registered owners listed on the account sign the request. - - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. IMPORTANT EXCHANGE INFORMATION: - - You must exchange into the same share class you currently own. - -- Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - - It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee (in the case of certain Funds) or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. - -- DIVIDENDS, DISTRIBUTIONS AND TAXES - - The Funds generally declare and pay dividends and capital gain distributions (if any) at least once a year. - - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - - Reinvested dividends and distributions are added to your account at NAV and are not subject to a sales charge regardless of which share class you own. - - Cash dividends and distributions can be sent to you: - - BY MAIL: a check will be mailed to the address of record unless otherwise instructed. - - BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into your bank account. To change your dividend and/or distribution options, call IMSC at 800.777.6472. Dividends ordinarily will vary from one class to another. The Funds intend to declare and pay 34 85 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- dividends annually. The Funds will distribute net investment income and net realized capital gains, if any, at least once a year. The Funds may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of a Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of a Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, are taxable to you as long-term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Funds' managers may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, they do not generally manage the Funds to optimize tax efficiencies. If shares of a Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by a Fund during January of the following calendar year. In certain years, you may be able to claim a credit or deduction on your income tax return for your share of foreign taxes paid by your Fund. Upon the sale or exchange of your Fund shares, you may realize a capital gain or loss which will be long term or short term, generally depending upon how long you held your shares. A Fund may be required to withhold U.S. Federal income tax at the rate of 31% of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Fund, including the status of distributions from the Funds under applicable state or local law. 35 86 36 FINANCIAL HIGHLIGHTS The financial highlights tables are intended to help you understand each Fund's financial performance and reflects results for a single Fund share. The total returns in the table represent the rate an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been audited by __________________________, whose report, along with each Fund's financial statements, is included in the Fund's Annual Report to shareholders (which is available upon request). - --------------------------------------------------------------------------------
For the period February 10, 1998 (Commencement) to December 31, IVY CHINA REGION FUND 1999 1998 - ----------------------------------------------------------------------------------------- ADVISOR CLASS SELECTED PER SHARE DATA ----------------- ----------------- Net asset value, beginning of period............ $ $ 7.89 ----------------- ----------------- Loss from investment operations Net investment income(a)...................... .08 Net gains or losses on securities (both realized and unrealized).................... (1.62) ----------------- ----------------- Total from investment operations.............. (1.54) ----------------- ----------------- Less distributions Dividends (from net investment income)........ .08 ----------------- ----------------- Total distributions......................... .08 ----------------- ----------------- Net asset value, end of period.................. $ $ 6.27 ================= ================= Total return (%)(b)............................. (19.56) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)........ $ $ 10 Ratio of expenses to average net assets(c) With expense reimbursement (%)(d)............. 2.92 Without expense reimbursement (%)(d).......... 3.48 Ratio of net investment income to average net assets (%)(a)(d).............................. .98 Portfolio turnover rate (%)..................... 56
(a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Total expenses include fees paid indirectly, if any, through an expense offset arrangement. (d) Annualized - --------------------------------------------------------------------------------
For the period April 30, 1998 (COMMENCEMENT) IVY DEVELOPING TO DECEMBER 31, NATIONS FUND 1999 1998 - ----------------------------------------------------------------------------------------- ADVISOR CLASS SELECTED PER SHARE DATA ---------------- ----------------- Net asset value, beginning of period............ $ $ 7.48 ---------------- ----------------- Loss from investment operations Net investment income(a)...................... .04 Net gains or losses on securities (both realized and unrealized).................... (1.47) ---------------- ----------------- Total from investment operations.............. (1.43) ---------------- ----------------- Net asset value, end of period.................. $ $ 6.05 ================ ================= Total return (%)(b)............................. (19.06) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)........ $ $ 82 Ratio of expenses to average net assets(c) With expense reimbursement (%)(d)............. 1.68 Without expense reimbursement (%)(d).......... 2.97 Ratio of net investment income to average net assets (%)(a)(d).............................. 1.38 Portfolio turnover rate (%)..................... 47
(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) Total expenses include fees paid indirectly, if any, through an expense offset arrangement. (d) Annualized
IVY GLOBAL FUND ADVISOR CLASS ------------------------- for the period April 30, 1998 (Commencement) to December 31, - ------------------------------------------------------------------------------------------------------------------ 1999 1998 SELECTED PER SHARE DATA ------------------------- ------------------------- Net asset value, beginning of period....................... $ $ 13.26 ------------------------- ------------------------- Loss from investment operations Net investment income (a)................................ .05 Net gains or losses on securities (both realized and unrealized)............................................ (1.41) ------------------------- ------------------------- Total from investment operations......................... (1.36) ------------------------- ------------------------- Less distributions Distributions from capital gains......................... .54 ------------------------- ------------------------- Total distributions.................................... .54 ------------------------- ------------------------- Net asset value, end of period............................. $ $ 11.36 ========================= ========================= Total return (%)(b)........................................ (10.19) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................... $ $ 321 Ratio of expenses to average net assets With expense reimbursement (%)(c)........................ 1.75 Without expense reimbursement (%)(c)..................... 2.11 Ratio of net investment income to average net assets (%)(a)(c)................................................ .59 Portfolio turnover rate (%)................................ 17
(a) Net investment income is net of expenses reimbursed by Manager. (b) Total return repre- sents aggregate total return and does not reflect a sales charge. (c) Annualized - --------------------------------------------------------------------------------
ADVISOR CLASS IVY GLOBAL SCIENCE & ------------------------- TECHNOLOGY FUND FOR THE PERIOD April 15, 1998 (Commencement) to December 31, - ---------------------------------------------------------------------------------------------------------------- 1999 1998 SELECTED PER SHARE DATA ---------------------- ------------------------- Net asset value, beginning of period....................... $ $20.19 ---------------------- ------------------------- Income from investment operations Net investment loss (c).................................. (.20) Net gains or losses on securities (both realized and unrealized)(c)......................................... 3.63 ---------------------- ------------------------- Total from investment operations......................... 3.43 ---------------------- ------------------------- Net asset value, end of period............................. $ $23.62 ====================== ========================= Total return (%)(a)........................................ 16.99 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................... $ $ 15 Ratio of expenses to average net assets Without expense reimbursement (%)(b)..................... 2.18 Ratio of net investment loss to average net assets (%)(b)................................................... (1.91) Portfolio turnover rate (%)................................ 73
(a) Total return repre- sents aggregate total return and does not reflect a sales charge. (b) Annualized (c) Based on average shares outstanding. 87 37 [IVY LEAF LOGO] - --------------------------------------------------------------------------------
IVY INTERNATIONAL FUND II ADVISOR CLASS ------------------------- for the period February 23, 1998 (Commencement) to December 31, - -------------------------------------------------------------------------------------------------------------------- 1999 1998 SELECTED PER SHARE DATA ------------------------ ------------------------- Net asset value, beginning of period....................... $ $9.63 ------------------------ ------------------------- Loss from investment operations Net investment income (a)................................ .11 Net gains or losses on securities (both realized and unrealized)............................................ (.13) ------------------------ ------------------------- Total from investment operations......................... (.02) ------------------------ ------------------------- Less distributions Dividends from net investment income..................... .11 Distributions from capital gains......................... .02 ------------------------ ------------------------- Total distributions.................................... .13 ------------------------ ------------------------- Net asset value, end of period............................. $ $9.48 ======================== ========================= Total return (%)(b)........................................ (.15) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................... $ $ 510 Ratio of expenses to average net assets With expense reimbursement (%)(c)........................ 1.32 Without expense reimbursement (%)(c)..................... 1.45 Ratio of net investment income to average net assets (%)(a)(c)................................................ 1.23 Portfolio turnover rate (%)................................ 16
(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 - --------------------------------------------------------------------------------
IVY PAN-EUROPE FUND ADVISOR CLASS ------------------------- for the period March 23, 1998 (Commencement) to December 31, - -------------------------------------------------------------------------------------------------------------------- 1999 1998 SELECTED PER SHARE DATA ------------------------ ------------------------- Net asset value, beginning of period....................... $ $12.31 ------------------------ ------------------------- Loss from investment operations Net investment loss (a)(e)............................... (.01) Net gains or losses on securities (both realized and unrealized)(e)......................................... (1.02) ------------------------ ------------------------- Total from investment operations......................... (1.03) ------------------------ ------------------------- Net asset value, end of period............................. $ $11.28 ======================== ========================= Total return (%)(b)........................................ (8.37) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................... $ $ 65 Ratio of expenses to average net assets (d) With expense reimbursement (%)(c)........................ 2.41 Without expense reimbursement (%)(c)..................... 5.78 Ratio of net investment loss to average net assets (%)(a)(c)................................................ (.04) Portfolio turnover rate (%)................................ 25
(a) Net investment loss is net of expenses reimbursed by Manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized (d) Total expenses include fees paid indirectly, if any, through an expense offset arrangement. (e) Based on average shares outstanding. 88 Account Application FUND USE ONLY Account Number Dealer/Branch/Rep Account Type/Soc Cd [IVY FUNDS LOGO] Please mail applications and checks to: USE FOR ADVISOR Ivy Mackenzie Services Corp., CLASS ONLY P.O. Box 3022, Boca Raton, Florida 33431-0922 This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. 1 REGISTRATION Name ------------------------- ------------------------- ------------------------- Address ------------------------- City ---------- State ---------- Zip ------- Phone # (day) ( ) -------------------------------------------- Phone # (evening) ( ) -------------------------------------------- -- Individual -- UGMA/UTMA -- Sole proprietor -- Joint tenant -- Corporation -- Trust -- Estate -- Partnership -- Other ------------------------------------ Date of trust --------------------------------- Minor's state of residence ---------------
2 TAX I.D. Citizenship: -- U.S. -- Other (please specify): ----------
Social security # ---- or Tax identification # ---- Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) Please see the "Dividends, distributions and taxes" section of the Prospectus for additional information on completing this section. 3 DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify IMSC of any purchases made under a Letter of Intent or Rights of Accumulation. Dealer name ----------------------------------- Branch office address ------------------------- City ---------- State ---------- Zip ------- Representative's name ------------------------------------------------------------------ Representative's # -----Representative's phone # ----- Authorized signature of dealer ----------------------------------------------------------------- 4 INVESTMENTS A. Enclosed is my check ($10,000 minimum) for $ ---------- made payable to the appropriate fund. Please invest it in Advisor Class shares of the following fund(s): $ --------------- Ivy Asia Pacific Fund $ --------------- Ivy International Fund II $ --------------- Ivy China Region Fund $ --------------- Ivy International Small Companies $ --------------- Ivy Developing Nations Fund Fund $ --------------- Ivy European Opportunities Fund $ --------------- Ivy Pan-Europe Fund $ --------------- Ivy Global Fund $ --------------- Ivy South America Fund $ --------------- Ivy Global Natural Resources Fund $ --------------- Ivy Global Science & Technology Fund
B. FOR DEALER USE ONLY Confirmed trade orders: ------------------ ------------------ ------------------ Confirm Number Number of Shares Trade Date
89 5 DISTRIBUTION OPTIONS I would like to reinvest dividends and capital gains into additional shares in this account at net asset value unless a different option is checked below. A. --- Reinvest all dividends and capital gains into additional shares of a different Ivy fund account. Fund name: -------------------- Account #: -------------------- B. --- Pay all dividends in cash and reinvest capital gains into additional shares in this account or a different Ivy fund account. Fund name: -------------------- Account #: -------------------- C. --- Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT TO: ----- the address listed in the registration ----- the special payee listed in Section 7A (by mail) ----- the special payee listed in Section 7B (by EFT) 6 OPTIONAL SPECIAL FEATURES A. AUTOMATIC INVESTMENT METHOD (AIM) --- I wish to have my bank account listed in section 7B automatically debited via EFT on a predetermined frequency and invested into my Ivy Fund account listed below. 1. Withdraw $ ---------------- for each time period indicated below and invest my bank proceeds in Advisor Class shares of the following Ivy fund: Fund name: -------------------- Account #: -------------------- 2. Debit my bank account: --- Annually (on the --- day of the month of -----------------------). --- Semiannually (on the --- day of the months of --- and ---). --- Quarterly (on the --- day of the first/second/third month of each calendar quarter). (CIRCLE ONE) --- Monthly*--- once per month on the --- day --- twice per month on the ----- days --- 3 times per month on the ----- days --- 4 times per month on the ----- days B. SYSTEMATIC WITHDRAWAL PLANS (SWP)** --- I wish to have my Ivy Fund account automatically debited on a predetermined frequency and the proceeds sent to me per my instructions below. 1. Withdraw ($250 minimum) $----- for each time period indicated below from the following Ivy Fund account: Fund name: -------------------- Account #: -------------------- 2. Withdraw from my Ivy Fund account: --- Annually (on the ----- day of the month of ----------). ---Semiannually (on the ----- day of the months of ----- and -----). --- Quarterly (on the ----- day of the first/second/third month of each calendar quarter. (CIRCLE ONE) --- Monthly*--- once per month on the --- day --- twice per month on the ----- days --- 3 times per month on the ----- days --- 4 times per month on the ----- days 3. I request the withdrawal proceeds be: --- sent to the address listed in the registration --- sent to the special payee listed in section 7A or 7B. --- invested into additional Advisor Class shares of a different Ivy Fund: Fund name: -------------------- Account #: -------------------- Note: A minimum balance of $10,000 is required to establish a SWP. 6. OPTIONAL SPECIAL FEATURES (CONT.) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** --- yes --- no By checking "yes" immediately above, I authorize IMSC to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may be wire transferred to the bank account designated ($1,000 minimum). (COMPLETE SECTION 7B). D. TELEPHONE EXCHANGES** --- yes --- no By checking "yes" immediately above, I authorize exchanges by telephone among the Ivy funds upon instructions from any person as more fully described in the Prospectus. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone exchange privilege will be provided automatically. E. TELEPHONIC REDEMPTIONS** --- yes --- no By checking "yes" immediately above, the Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds are to be payable to the shareholder of record and mailed to the address of record. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone redemption privilege will be provided automatically. * There must be a period of at least seven calendar days between each investment (AIM)/withdrawal (SWP) period. ** This option may not be used if shares are issued in certificate form. 7 SPECIAL PAYEE A. MAILING ADDRESS: Please send all disbursements to this payee: Name of bank or individual ---------- Account # (if applicable) ---------- Street ---------- City ---------- State ----- Zip ----- B. FED WIRE/EFT INFORMATION Financial institution ---------- ABA # ---------- Account # ---------- Street ---------- City ---------- State ----- Zip ----- (PLEASE ATTACH A VOIDED CHECK.) 8 SIGNATURES Investors should be aware that the failure to check the "No" under Section 6D or 6E above means that the Telephone Exchange/ Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Please see "How to exchange shares" and "How to redeem shares" in the Prospectus for more information on these privileges. I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this application by reference. I am certifying my taxpayer information as stated in Section 2. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. ---------------------------------------- -------------------- Signature of Owner, Custodian, Trustee or Date Corporate Officer ---------------------------------------- -------------------- Signature of Joint Owner, Co-Trustee or Date Corporate Officer (Remember to sign Section 8) DETACH ON PERFORATION TO MAIL 90 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- QUOTRON SYMBOLS AND CUSIP NUMBERS
------------------------------------------------------------------------------------------------------- FUND SYMBOL CUSIP ------------------------------------------------------------------------------------------------------- Ivy Asia Pacific Fund - Advisor Class * 465897312 Ivy China Region Fund - Advisor Class * 465897270 Ivy Developing Nations Fund - Advisor Class * 465897163 Ivy European Opportunities Fund - Advisor Class * 465898856 Ivy Global Fund - Advisor Class * 465897239 Ivy Global Natural Resources Fund - Advisor Class * 465897221 Ivy Global Science & Technology Fund - Advisor Class * 465897213 Ivy International Fund II - Advisor Class * 465897197 Ivy International Small Companies Fund - Advisor Class * 465897189 Ivy Pan-Europe Fund - Advisor Class * 465897155 Ivy South America Fund - Advisor Class * 465897171 ------------------------------------------------------------------------------------------------------- * Symbol not assigned as of this printing
91 (Ivy Funds Logo) -- HOW TO RECEIVE MORE INFORMATION ABOUT THE FUNDS Additional information about the Funds and their investments is contained in the Funds' Statement of Additional Information dated ____________, 2000 (the "SAI"), which is incorporated by reference into this Prospectus, and each Fund's annual and semiannual reports to shareholders. Each Fund's annual report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its most recent fiscal year. The SAI and annual and semiannual reports are available upon request and without charge from the Distributor at the following address and phone number. Ivy Mackenzie Distributors, Inc. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432 800.456.5111 Information about the Funds (including the SAI and annual and semiannual reports) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (please call 1-202-942-8090 for further details). Reports and other information about the Funds are also available on the EDGAR Database on the SEC's Internet Website (www.sec.gov), and copies of this information may be obtained, upon payment of a copying fee, by electronic request at the following address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009. -- SHAREHOLDER INQUIRIES Please call Ivy Mackenzie Services Corp., the Funds' transfer agent, regarding any other inquiries about the Funds at 800.777.6472. www.ivymackenzie.com E-mail: invest@ivymackenzie.com Investment Company Act File No. 811-1028 01INTLADV0499 92 [IVY FUNDS LOGO] This is your prospectus from IVY MACKENZIE DISTRIBUTORS, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 800.456.5111 _____, 2000 U.S. EQUITY FUNDS IVY GROWTH FUND IVY GROWTH WITH INCOME FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND Ivy Fund is a registered open-end investment company consisting of twenty-one separate portfolios. This Prospectus relates to the Class A, Class B and Class C shares of the four funds listed above (the "Funds"), and the Class I shares of Ivy US Blue Chip Fund. The Funds also offer Advisor Class shares, which are described in a separate prospectus. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. Investments in the Funds are not deposits of any bank and are not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. - -- CONTENTS 2 Ivy Growth Fund 4 Ivy Growth with Income Fund 6 Ivy US Blue Chip Fund 8 Ivy US Emerging Growth Fund 10 Additional information about investment strategies and risks 12 Management 13 Shareholder information 20 Financial highlights 25 Account application OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, Massachusetts CUSTODIAN AUDITORS Brown Brothers Harriman & Co. __________________________ Boston, Massachusetts Fort Lauderdale, Florida TRANSFER AGENT INVESTMENT MANAGER Ivy Mackenzie Services Corp. Ivy Management, Inc. PO Box 3022 700 South Federal Highway Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432 800.777.6472 800.456.5111
Mackenzie Logo 93 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GROWTH FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY GROWTH FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth, with current income being a secondary consideration. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in the equity securities of U.S. companies of any size. The Fund's portfolio is divided into two segments, each of which is managed according to the investment style of its portfolio manager (such as growth or value). - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 2 94 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on January 12, 1960 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- (CHART) '89 27.24% '90 -3.76% '91 30.76% '92 5.21% '93 12.29% '94 -2.79% '95 27.33% '96 17.22% '97 11.69% '98 14.05% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 21.57% Worst quarter Q3 '98: (17.04%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS* December 31, 1999 ----------------------------------------------------------------------- S&P 500 WILSHIRE CLASS A CLASS B CLASS C INDEX 5000 ----------------------------------------------------------------------- Past year............ 7.50% 7.99% 11.72% 29.78% 21.72% Past 5 years......... 11.70% 11.70% n/a 24.49% 19.43% Past 10 years........ 12.65% n/a n/a 19.40% n/a Since inception: Class B**............ n/a 11.88% n/a 23.82% 18.79% Class C**............ n/a n/a 10.67% 29.75% 22.98%
*Performance figures reflect any applicable sales charges. **The inception dates for the Fund's Class B and Class C shares were October 22, 1993 and April 30, 1996, respectively. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C - ----------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................ 5.75% none none Maximum deferred sales charge (load) (as a percentage of purchase price)................ none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends............. none none none Redemption fee*....... none none none Exchange fee.......... none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Management fees*...... 0.85% 0.85% 0.85% Distribution and/or service (12b-1) fees.................. 0.25% 1.00% 1.00% Other expenses........ 0.28% 0.47% 0.68% Total annual Fund operating expenses.... 1.38% 2.32% 2.53%
*Management Fees are reduced to 0.75% for net assets over $350 million. - ------------------------------------------------------------------------- - -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- -------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - -------------------------------------------------------------------------------- 1st $ 707 $ 735 $ 235 $ 356 $ 256 3rd 987 1,024 724 788 788 5th 1,287 1,440 1,240 1,345 1,345 10th 2,137 2,421 2,421 2,866 2,866
3 95 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GROWTH WITH INCOME FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY GROWTH WITH INCOME FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth, with current income being a secondary consideration. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests almost exclusively in U.S. equity securities, a number of which pay dividends. Among the chief characteristics that the Fund's manager seeks in selecting securities are: - stock prices that appear low relative to the company's expected profitability; - financial security with capitalizations over $100 million; and - more than three years of operating history. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking relatively consistent performance without the volatility of more aggressive growth funds. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on April 1, 1984 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 - ------------------------------------------------------- (CHART) '89 18.06% '90 -0.18% '91 36.33% '92 2.61% '93 15.07% '94 -2.03% '95 24.93% '96 20.46% '97 21.57% '98 9.64% '99 _____%
* Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. # Grantham, Mayo Van Otterloo & Co. was subadviser to the Fund from April 1, 1984 through June 30, 1989. Best quarter Q4 '98: 17.92% Worst quarter Q3 '98: (15.69%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1999 - ------------------------------------------------------------------------------- MORNINGSTAR S&P MID-CAP CLASS CLASS CLASS 500 WILSHIRE BLEND A B C INDEX 5000 UNIVERSE - ------------------------------------------------------------------------------- Past year............ 3.53% 4.01% 8.16% 29.78% 21.72% 9.31% Past 5 years......... 13.16% 13.39% n/a 24.49% 19.43% 15.45% Past 10 years........ 13.41% n/a n/a 19.40% n/a 14.75% Since inception: Class B*............. n/a 13.12% n/a 23.82% 18.79% 15.70%*** Class C**............ n/a n/a 15.82% 29.75% 22.98% 16.02%
#Performance figures reflect any applicable sales charges. *The inception date for the Fund's Class B shares was October 22, 1993. **The inception date for the Fund's Class C shares was April 30, 1996. ***Since November 1, 1993. 4 96 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
SHAREHOLDER fees paid directly from FEES your investment ------------------------------------------------------------ CLASS A CLASS B CLASS C ------------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price)......................... 5.75% none none Maximum deferred sales charge (load)(as a percentage of purchase price)................ none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends...................... none none none Redemption fee*................ none none none Exchange fee................... none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ------------------------------------------------------- CLASS A CLASS B CLASS C - ------------------------------------------------------- Management fees........... 0.75% 0.75% 0.75% Distribution and/or service (12b-1) fees...... 0.25% 1.00% 1.00% Other expenses............ 0.60% 0.58% 0.52% Total annual Fund operating expenses........ 1.60% 2.33% 2.27% - -------------------------------------------------------------------------
- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ---------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - ---------------------------------------------------------------------------- 1st $ 728 $ 736 $ 236 $ 330 $ 230 3rd 1,051 1,027 727 709 709 5th 1,396 1,445 1,245 1,215 1,215 10th 2,366 2,484 2,484 2,605 2,605
5 97 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY US BLUE CHIP FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY US BLUE CHIP FUND - -- INVESTMENT OBJECTIVE The Fund seeks long term growth, with current income being a secondary consideration. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in the common stocks of U.S. companies occupying major market positions that are expected to be maintained or enhanced over time (commonly known as "Blue Chip" companies). The median market capitalization of companies targeted for investment is expected to be at least $5 billion. The Fund's manager uses an equity style that focuses on both growth and value. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 6 98 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund for the first full calendar year since its commencement on [_______, 1998] with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. --------------------------------------------------------------------------- Annual Total Returns for the year ending For Class A Shares* December 31 --------------------------------------------------------------------------- [Insert 1999 Bar Graph] *Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes or shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter ____'99: __% Worst quarter ____'99: __%
------------------------------------------------------------------------------------------------ Average Annual Total Returns# for the periods ending December 31, 1999 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I ------------------------------------------------------------------------------------------------ Past Year ___% ___% ___% ___% ___% ___% Since inception* ___% ___% ___% ___% ___% ___%
# Performance figures reflect any applicable sales charges. * The inception date for all Classes was [______________]. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
SHAREHOLDER fees paid directly from FEES your investment ------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I ------------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price).................. 5.75% none none none Maximum deferred sales charge (load) (as a percentage of original purchase price)......... none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends.... none none none none Redemption fee*......... none none none none Exchange fee............ none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------ Management fees...... 0.75% 0.75% 0.75% 0.75% Distribution and/or service (12b-1) fees................. 0.25% 1.00% 1.00% none Other expenses....... 5.34% 5.29% 5.38% 5.25% Total annual Fund operating expenses... 6.34% 7.04% 7.13% 6.00% Expenses reimbursed*.......... 4.91% 4.91% 4.91% 4.91% Net Fund operating expenses*............ 1.43% 2.13% 2.22% 1.09%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.15% of the Fund's average net assets (excluding Rule 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- - -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- -------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - -------------------------------------------------------------------------------- 1st $ 712 $ 716 $216 $325 $225 $111 3rd 1,218 1,192 892 919 919 579 5th _____ _____ _____ _____ _____ _____ 10th _____ _____ _____ _____ _____ _____
7 99 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY US EMERGING GROWTH FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY US EMERGING GROWTH FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth, with current income being a secondary consideration. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of small- and medium-sized U.S. companies that are in the early stages of their life cycles and that the Fund's manager believes have the potential to increase their sales and earnings at above-average rates. These companies typically are selected from within the technology, health care, entertainment, and business and consumer services sectors, and may include companies engaged in initial public offerings. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since it was first offered for sale to the public on April 30, 1993 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 - ----------------------------------------------------------- (CHART) '94 3.29% '95 42.07% '96 18.52% '97 4.26% '98 18.00% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q4 '98: 31.07% Worst quarter Q3 '98: (17.82%) 8 100 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ------------------------------------------------------------------------ RUSSELL 2000 MORNINGSTAR GROWTH SMALL GROWTH CLASS A CLASS B CLASS C INDEX UNIVERSE ------------------------------------------------------------------------ Past year............ 11.21% 12.13% 16.19% 1.23% 4.18% Past 5 years......... 15.06% 15.35% n/a 12.00% 12.44% Since inception: Class A*............. 20.88% n/a n/a 12.39% 17.19% Class B**............ n/a 14.85% n/a 9.77% 14.78% Class C***........... n/a n/a 5.69% 4.24% 8.53%****
#Performance figures reflect any applicable sales charges. *The inception date for the Fund's Class A shares was March 3, 1993 (performance is calculated based on the date the Fund first became available for sale to the public, April 30, 1993.) **The inception date for the Fund's Class B shares was October 22, 1993. Russell 2000 Growth Index performance is calculated from October 31, 1993. Morningstar performance is calculated from November 1, 1993. ***The inception date for the Fund's Class C shares was April 30, 1996. ****Since May 1, 1996. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ------------------------------------------------------------ CLASS A CLASS B CLASS C - ------------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................. 5.75% none none Maximum deferred sales charge (load) (as a percentage of purchase price)................. none 5.00% 1.00% Maximum sales charge (load) imposed on reinvested dividends... none none none Redemption fee*........ none none none Exchange fee........... none none none *If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------------- CLASS A CLASS B CLASS C - ----------------------------------------------------------- Management fees........ 0.85% 0.85% 0.85% Distribution and/or service (12b-1) fees... 0.25% 1.00% 1.00% Other expenses......... 0.60% 0.60% 0.55% Total annual Fund operating expenses..... 1.70% 2.45% 2.40%
- ----------------------------------------------------------- - -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ------------------------------------------------------------------------------ (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C - ------------------------------------------------------------------------------ 1st $ 738 $ 748 $ 248 $ 343 $ 243 3rd 1,080 1,064 764 748 748 5th 1,445 1,506 1,306 1,280 1,280 10th 2,468 2,601 2,601 2,736 2,736
9 101 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS - -- PRINCIPAL STRATEGIES IVY GROWTH FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in mid- and large-cap U.S. stocks, and seeks to provide additional diversification by investing a portion of its assets in small-cap U.S. stocks and large-cap international stocks. The Fund is managed using a combination of investment styles. Approximately one half of the Fund's portfolio is comprised of companies that have had a proven and consistent record of earnings, but whose prices appear to be low relative to their underlying profitability. The other half of the Fund's portfolio is invested in equity securities of small- and medium-sized U.S. companies that are in the early stages of their life cycles and that are believed to have the potential to increase their sales and earnings at above average rates. IVY GROWTH WITH INCOME FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in the common stock of domestic corporations. Companies targeted for investment typically have stock prices that appear low relative to their expected profitability, rising earnings, a minimum three-year operating history and capitalizations over $100 million. Dividend-paying ability, financial strength and trading liquidity are also taken into account. IVY US BLUE CHIP FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the common stock of U.S. companies occupying leading market positions that are expected to be maintained or enhanced over time (commonly known as "Blue Chip" companies). Blue Chip companies tend to have a lengthy history of profit growth and dividend payment, and a reputation for quality management structure, products and services. Securities of Blue Chip companies are generally considered to be highly liquid, since they are well supplied in the marketplace relative to their smaller-capitalized counterparts and because their trading volume tends to be higher. The median market capitalization of companies targeted for investment is expected to be at least $5 billion. IVY US EMERGING GROWTH FUND: The Fund seeks to achieve its principal objective of long term capital growth by investing primarily in the equity securities of domestic corporations that are small and medium sized. Companies targeted for investment typically are in the early stages of their life cycles and are believed by the Fund's manager to have the potential to increase their sales and earnings at above-average rates. These companies typically are selected from within the technology, health care, entertainment, and business and consumer services sectors, which have presented attractive growth opportunities in recent years. Portfolio holdings are reviewed regularly for valuation, relative strength and changes in earnings estimates. ALL FUNDS: Each Fund may from time to time take a temporary defensive position and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short-term notes and other money market securities. When a Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk. - -- PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of a Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. Each Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in a Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: Following is a description of the general risk characteristics of the investment techniques that each Fund's manager considers important in achieving the Fund's investment objective or in managing its exposure to risk (and that could therefore have a significant effect on the Fund's returns). The risks of certain portfolio management practices that are not principal strategies of the Funds (such as borrowing) are also described below. Other investment methods that the Funds may use (such as derivative investments), but that are not likely to play a key role in their overall investment strategies, are described in the Fund's Statement of Additional Information (see back cover page for information on how you can receive a free copy). 10 102 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RISK CHARACTERISTICS: - - EQUITY SECURITIES: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller-company securities may also be higher than those of larger companies. Investors in Ivy US Emerging Growth Fund should note that these risks are heightened in the case of securities issued through IPOs. - - BORROWING: For temporary purposes, each Fund may borrow up to 10% of the value of its total assets from qualified banks. Borrowing may exaggerate the effect on the Fund's share value of any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. 11 103 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- MANAGEMENT - -- INVESTMENT ADVISOR Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 IMI provides investment advisory and business management services to the Funds. IMI is an SEC-registered investment advisor with over $5 billion in assets under management, and provides similar services to the other fifteen series of Ivy Fund. For the fiscal year ending December 31, 1999, the Funds paid IMI a fee that was equal to the following percentages of the Funds' respective average net assets: - Ivy Growth Fund, 0.85%; - Ivy Growth with Income Fund, 0.75%; - Ivy US Blue Chip Fund, 0.75%; and - Ivy US Emerging Growth Fund, 0.85% - -- PORTFOLIO MANAGEMENT IVY GROWTH FUND: The Fund's portfolio is divided into two different segments, which are managed by the following individuals: - James W. Broadfoot, President of IMI and a Vice President of Ivy Fund, manages the U.S. Emerging Growth segment of the Fund's portfolio. Before joining IMI in 1990, Mr. Broadfoot was the principal in an investment counsel firm specializing in emerging growth companies. He has over 25 years of professional investment experience, holds an MBA from the Wharton School of Business and is a Chartered Financial Analyst. - Paul P. Baran, a Senior Vice President of IMI, manages the core growth segment of the Fund's portfolio. Before joining IMI, Mr. Baran was Senior Vice President/Chief Investment Officer of Central Fidelity National Bank. He has 24 years of professional investment experience and is a Chartered Financial Analyst. He has an MBA from Wayne State University. IVY GROWTH WITH INCOME FUND AND IVY US BLUE CHIP FUND: Both Funds are managed by Paul P. Baran (see "Ivy Growth Fund," above). IVY US EMERGING GROWTH FUND: The Fund is managed by James W. Broadfoot (see "Ivy Growth Fund," above). 12 104 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHAREHOLDER INFORMATION - -- PRICING OF FUND SHARES Each Fund calculates its share price by dividing the value of the Fund's net assets by the total number of its shares outstanding as of the close of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the Exchange is open for trading (normally any weekday that is not a national holiday). Each portfolio security that is listed or traded on a recognized stock exchange is valued at the security's last quoted sale price on the exchange on which it is principally traded. If no sale is reported at that time, the average between the last bid and asked prices is used. Securities and other Fund assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Funds' Board of Trustees. IMI may also price a foreign security at its fair value if events materially affecting the estimated value of the security occur between the close of the foreign exchange on which the security is principally traded and the time as of which a Fund prices its shares. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of a Fund at a time in an attempt to profit from short term market movements. When such fair-value pricing occurs, however, there may be some period of time during which a Fund's share price and/or performance information is not available. The number of shares you receive when you place a purchase or exchange order, and the payment you receive after submitting a redemption request, is based on a Fund's net asset value ("NAV") next determined after your instructions are received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent) or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge (see "Choosing the appropriate class of shares""). Since Ivy Growth Fund may invest in securities that are listed on foreign exchanges that may trade on weekends or other days when the Funds do not price their shares, that Fund's share value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. - -- HOW TO BUY SHARES Please read these sections below carefully before investing. CHOOSING THE APPROPRIATE CLASS OF SHARES: The essential features of the Funds' different classes of shares are described below. If you do not specify on your Account Application which class of shares you are purchasing, it will be assumed that you are purchasing Class A shares. Each Fund has adopted separate distribution plans pursuant to Rule 12b-1 under the 1940 Act for their Class A, B and C shares that allow the Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Because these fees are paid out of the Fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. - CLASS A SHARES: Class A shares are sold at net asset value plus a maximum sales charge of 5.75% (the "offering price"). The sales charge may be reduced or eliminated if certain conditions are met (see "Additional purchase information"). Class A shares are subject to a 0.25% Rule 12b-1 service fee. - CLASS B SHARES: Class B shares are offered at net asset value, without an initial sales charge, but subject to a contingent deferred sales charge ("CDSC") that declines from 5.00% to zero on certain redemptions within six years of purchase. Class B shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee, and convert automatically into Class A shares eight years after purchase. - CLASS C SHARES: Class C shares are offered at net asset value, without an initial sales charge, but subject to a CDSC of 1.00% for redemptions within the first year of purchase. Class C 13 105 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee. - CLASS I SHARES: Class I shares are offered to certain classes of investors of Ivy US Blue Chip Fund at net asset value, without any sales load or Rule 12b-1 fees. The following table displays the various investment minimums, sales charges and expenses that apply to each class.
- --------------------------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - --------------------------------------------------------------------------------- Minimum initial investment*.......... $1,000 $1,000 $1,000 $5,000,000 Minimum subsequent investment*.......... $100 $100 $100 $10,000 Initial sales charge............... Maximum None None None 5.75%, with options for a reduction or waiver CDSC................. None, except Maximum 1.00% for the None on certain 5.00%, first year NAV purchases declines over six years Service and distribution fees.... 0.25% service 0.75% 0.75% None fee distribution distribution fee and 0.25% fee and 0.25% service fee service fee
*Minimum initial and subsequent investments for retirement plans are $25. - -- ADDITIONAL PURCHASE INFORMATION CLASS A SHARES: Class A shares are sold at a public offering price equal to their net asset value per share plus an initial sales charge, as set forth below (which is reduced as the amount invested increases):
- --------------------------------------------------------------- SALES SALES PORTION OF CHARGE AS A CHARGE AS A PUBLIC PERCENTAGE PERCENTAGE OFFERING OF PUBLIC OF NET PRICE OFFERING AMOUNT RETAINED BY AMOUNT INVESTED PRICE INVESTED DEALER - --------------------------------------------------------------- Less than $50,000..... 5.75% 6.10% 5.00% $50,000 but less than $100,000.............. 5.25% 5.54% 4.50% $100,000 but less than $250,000.............. 4.50% 4.71% 3.75% $250,000 but less than $500,000.............. 3.00% 3.09% 2.50% $500,000 or over*..... 0.00% 0.00% 0.00%
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years of the end of the month in which they were purchased. Class A shares that are acquired through reinvestment of dividends or distributions are not subject to any sales charges. HOW TO REDUCE YOUR INITIAL SALES CHARGE: - - "Rights of Accumulation" permits you to pay the sales charge that applies to the cost or value (whichever is higher) of all Ivy Fund Class A shares you own. - - A "Letter of Intent" permits you to pay the sales charge that would apply to your cumulative purchase of Fund shares over a 13-month period (certain restrictions apply). HOW TO ELIMINATE YOUR INITIAL SALES CHARGE: You may purchase Class A shares at NAV (without an initial sales charge or a CDSC) through any one of the following methods: - - through certain investment advisors and financial planners who charge a management, consulting or other fee for their services; - - under certain qualified retirement plans; - - as an employee or director of Mackenzie Investment Management Inc. or its affiliates; - - as an employee of a selected dealer; or - - through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Funds are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in assets or fewer than 500 eligible employees. For further information see "Group Systematic Investment Program" in the SAI. Certain trust companies, bank trust departments, credit unions, savings and loans and other similar organizations may also be exempt from the initial sales charge on Class A shares. You may also purchase Class A shares at NAV if you are investing at least $500,000 through a dealer or agent. Ivy Mackenzie Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the dealer or agent (out of IMDI's own resources) for 14 106 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- its distribution assistance according to the following schedule:
- -------------------------------------------------- PURCHASE AMOUNT COMMISSION - -------------------------------------------------- First $3,000,000...................... 1.00% Next $2,000,000....................... 0.50% Over $5,000,000....................... 0.25%
IMDI may from time to time pay a bonus or other cash incentive to dealers (other than IMDI), including those that employ a registered representative who during a specified time period sells a minimum dollar amount of the shares of a Fund and/or other funds distributed by IMDI. Each Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of certain dealers meeting criteria established by IMDI. This privilege will apply only to Class A shares of a Fund that are purchased using proceeds obtained by such clients through redemption of another mutual fund's shares on which a sales charge was paid. Purchases must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. With respect solely to Ivy US Emerging Growth Fund, Former Class N shareholders of Hudson Capital Appreciation Fund are exempt from the initial sales charge on the Fund's Class A shares. CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to an initial sales charge but are subject to a CDSC. If you redeem your Class C shares within one year of purchase they will be subject to a CDSC of 1%, and Class B shares redeemed within six years of purchase will be subject to a CDSC at the following rates:
- -------------------------------------------------------- CDSC AS A PERCENTAGE OF YEAR SINCE DOLLAR AMOUNT PURCHASE SUBJECT TO CHARGE - -------------------------------------------------------- First...................... 5.00% Second..................... 4.00% Third...................... 3.00% Fourth..................... 3.00% Fifth...................... 2.00% Sixth...................... 1.00% Seventh and thereafter..... 0.00%
The CDSC for both Class B and Class C shares will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. No charge will be assessed on increases in account value above the original purchase price or on reinvested dividends and distributions. Shares will be redeemed on a lot-by-lot basis in the following order: - - Shares held more than six years; - - Shares acquired through reinvestment of dividends and distributions; - - Shares subject to the lowest CDSC percentage, on a first-in, first-out basis (1) with the portion of the lot attributable to capital appreciation which is not subject to a CDSC, redeemed first; then (2) the portion of the lot attributable to your original basis, which is subject to a CDSC. The CDSC for Class B shares is waived for: - - Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 1/2 years old. - - Redemptions by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers. - - Redemptions resulting from a tax-free return of excess contribution to an IRA. - - Withdrawals resulting from shareholder death or disability provided that the redemption is requested within one year of death or disability. - - Withdrawals through the Systematic Withdrawal Plan of up to 12.00% per year of your account value at the time the plan is established. Both Class B shares and Class C shares are subject to an ongoing service and distribution fee at a combined annual rate of up to 1.00% of the portfolio's average net assets attributable to its Class B or Class C shares. The ongoing distribution fees will cause these shares to have a higher expense ratio than that of Class A and Class I shares. IMDI uses the money that it receives from the deferred sales charge and the distribution fees to cover various promotional and sales related expenses, as well as expenses related to providing distributions services, such as compensating selected dealers and agents for selling these shares. Approximately eight years after the original date of purchase, your Class B shares will be converted automatically to Class A shares. Class A shares are subject to lower annual expenses than Class B shares. The conversion from Class B shares to Class A shares is not considered a taxable event for federal income tax purposes. Class C shares do not have a similar conversion privilege. CLASS I SHARES: Class I shares are offered only to institutions and certain individuals, and are not 15 107 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- subject to an initial sales charge or a CDSC, nor to ongoing service or distribution fees. Class I shares also bear lower fees than Class A, Class B and Class C shares. - -- SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the end of this Prospectus. Enclose a check payable to the Fund in which you wish to invest. You should note on the check the class of shares you wish to purchase. (see page 14 for minimum initial investments.) Deliver your application materials to your registered representative or selling broker, or send them to one of the addresses below: - BY REGULAR MAIL: Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 - By COURIER: Ivy Mackenzie Services Corp. 700 South Federal Hwy. Boca Raton, FL 33432-6114 - -- BUYING ADDITIONAL SHARES There are several ways to increase your investment in a Fund: - BY MAIL: Send your check with a completed investment slip (attached to your account statement) or written instructions indicating the account registration, Fund number or name, and account number. Mail to one of the addresses above. - THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. - BY WIRE: Purchases may also be made by wiring money from your bank account to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call IMSC at 800.777.6472. Wiring instructions are as follows: First Union National Bank of Florida Jacksonville, FL ABA #063000021 Account #2090002063833 For further credit to: Your Account Registration Your Fund Number and Account Number - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Ivy Fund account. Complete sections 6A and 7B of the Account Application. -- HOW TO REDEEM SHARES SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your registered securities dealer or directly through IMSC. If you choose to redeem through your registered securities dealer, the dealer is responsible for properly transmitting redemption orders in a timely manner. If you choose to redeem directly through IMSC, you have several ways to submit your request: - BY MAIL: Send your written redemption request to IMSC at one of the addresses at left. Be sure that all registered owners listed on the account sign the request. Medallion signature guarantees and supporting legal documentation may be required. When you redeem, IMSC will normally send redemption proceeds to you on the next business day, but may take up to seven days (or longer in the case of shares recently purchased by check). - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or custodial account. To process your redemption order by telephone, you must have telephone redemption privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds 16 108 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- electronically drawn each month from your Ivy Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: - BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. IMPORTANT REDEMPTION INFORMATION: - A CDSC may apply to certain Class A share redemptions, to Class B shares redeemed within six years of purchase, and to Class C shares that are redeemed within one year of purchase. - If you own shares of more than one class of a Fund, the Fund will redeem first the shares having the highest 12b-1 fees, unless you instruct otherwise. - Any shares subject to a CDSC will be redeemed last unless you elect otherwise. - Shares will be redeemed in the order described under "Additional Purchase Information -- Class B and Class C Shares". - A Fund may (on 60 days' notice) redeem the accounts of shareholders whose investment, including sales charges paid, has been less than $1,000 for more than 12 months. - A Fund may take up to seven days (or longer in the case of shares recently purchased by check) to send redemption proceeds. - -- HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of another Ivy Fund, subject to certain restrictions (see "Important exchange information"). SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as follows: - BY MAIL: Send your written exchange request to IMSC at one of the addresses on page 16 of this Prospectus. Be sure that all registered owners listed on the account sign the request. - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. IMPORTANT EXCHANGE INFORMATION: - You must exchange into the same share class you currently own. - -- Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee (in the case of certain funds), or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. - -- DIVIDENDS, DISTRIBUTIONS AND TAXES - The Funds generally declare and pay dividends and capital gain distributions (if any) at least once a year. - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - Reinvested dividends and distributions are added to your account at NAV and are not subject to a 17 109 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- sales charge regardless of which share class you own. - Cash dividends and distributions can be sent to you: - BY MAIL: A check will mailed to the address of record unless otherwise instructed. - BY ELECTRONIC FUNDS TRANSFER: Your proceeds will be directly deposited into your bank account. To change your dividend and/or distribution options, call IMSC at 800.777.6472. Dividends ordinarily will vary from one class to another. Each Fund intends to declare and pay dividends annually. The Funds will distribute net investment income and net realized capital gains, if any, at least once a year. The Funds may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of a Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of a Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long term capital gains over net short term capital losses), if any, are taxable to you as long term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Funds' managers may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, they do not generally manage the Funds to optimize tax efficiencies. If shares of the Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. In certain years, you may be able to claim a credit or deduction on your income tax return for your share of foreign taxes paid by the Fund. Upon the sale or exchange of your Fund shares, you may realize a capital gain or loss which will be long term or short term, generally depending upon how long you held your shares. The Fund may be required to withhold U.S. Federal income tax at the rate of 31% of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service ("IRS") that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Fund, including the status of distributions from the Fund under applicable state or local law. 18 110 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 19 111 [IVY LEAF LOGO] FINANCIAL HIGHLIGHTS The financial highlights tables are intended to help you understand each Fund's financial performance for the past five years (or less if a Fund has a shorter operating history), and reflects results for a single Fund share. The total returns in the table represent the rate an investor would have earned (or lost) each year on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been audited by __________________________, whose report, along with each Funds' financial statements, is included in its Annual Report to shareholders (which is available upon request).
================================================================================================================================= CLASS A IVY GROWTH FUND ------------------------------------------------------------------------ for the year ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA ------------------------------------------------------------------------- Net asset value, beginning of period.................. $ 17.80 $ 17.76 $ 16.75 $ 13.91 ------------------------------------------------------------------------- Income (loss) from investment operations Net investment income............................... .01 .02 .02(a) .05(a) Net gains or losses on securities (both realized and unrealized)....................................... 2.49 1.98 2.86 3.73 ------------------------------------------------------------------------- Total from investment operations.................... 2.50 2.00 2.88 3.78 ------------------------------------------------------------------------- Less distributions Dividends From net investment income........................ .02 .02 .02 .02 In excess of net investment income................ -- .13 .11 -- Distributions From capital gains................................ .40 1.81 1.74 .89 In excess of capital gains........................ -- -- -- .03 ------------------------------------------------------------------------- Total distributions............................... .42 1.96 1.87 .94 ------------------------------------------------------------------------- Net asset value, end of period........................ $ 19.88 $ 17.80 $ 17.76 $ 16.75 ========================================================================= Total return (%)...................................... 14.05(b) 11.69(b) 17.22(b) 27.33(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).............. $318,444 $320,000 $314,908 $289,954 Ratio of expenses to average net assets With expense reimbursement (%)...................... -- -- 1.45 1.59 Without expense reimbursement (%)................... 1.38 1.38 1.45 1.60 Ratio of net investment income to average net assets (%)................................................. .03 .13 .13(a) .32(a) Portfolio turnover rate (%)........................... 59 39 72 41
================================================================================================================================= CLASS A IVY GROWTH WITH INCOME FUND ------------------------------------------------------------------------ for the year ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA ------------------------------------------------------------------------- Net asset value, beginning of period.................. $ 12.59 $ 11.38 $ 10.98 $ 9.08 ------------------------------------------------------------------------- Income (loss) from investment operations Net investment income............................... .04 .08 .08 .11 Net gains or losses on securities (both realized and unrealized)....................................... 1.19 2.37 2.16 2.13 ------------------------------------------------------------------------- Total from investment operations.................... 1.23 2.45 2.24 2.24 ------------------------------------------------------------------------- Less distributions Dividends From net investment income........................ -- .03 .08 .08 In excess of net investment income................ -- -- .03 -- Distributions from capital gains.................... .28 1.21 1.73 .26 ------------------------------------------------------------------------- Total distributions............................... .28 1.24 1.84 .34 ------------------------------------------------------------------------- Net asset value, end of period........................ $ 13.54 $ 12.59 $ 11.38 $ 10.98 ========================================================================= Total return (%)...................................... 9.64(b) 21.57(b) 20.46(b) 24.93(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).............. $69,733 $ 69,742 $ 63,219 $ 59,054 Ratio of expenses to average net assets (%)........... 1.60 1.59 1.81 1.96 Ratio of net investment income to average net assets (%)................................................. .28 .58 .68 1.06 Portfolio turnover rate (%)........................... 108 36 138 81
20 112
===================================================================================================================== CLASS B CLASS C - --------------------------------------------------------------------------------------------------------------------- for the period April 30, 1996 for the year ended for the year ended (Commencement) December 31, December 31, to December 31, - --------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- $ 17.72 $ 17.69 $ 16.75 $ 13.91 $ 17.47 $ 17.59 $ 18.46 - --------------------------------------------------------------------------------------------------------------------- 2.46 1.96 2.81 3.71 2.38 1.86 1.02 - --------------------------------------------------------------------------------------------------------------------- 2.30 1.82 2.68 3.63 2.22 1.79 .96 - --------------------------------------------------------------------------------------------------------------------- .02 -- -- -- .02 -- -- -- .07 -- -- -- .13 .09 .40 1.72 1.74 .73 .40 1.78 1.74 -- -- -- .06 -- -- -- - --------------------------------------------------------------------------------------------------------------------- .42 1.79 1.74 .79 .42 1.91 1.83 - --------------------------------------------------------------------------------------------------------------------- $ 19.60 $ 17.72 $ 17.69 $ 16.75 $ 19.27 $ 17.47 $ 17.59 ===================================================================================================================== 12.99(b) 10.69(b) 16.02(b) 26.13(b) 12.72(b) 10.58(b) 5.20(c) $ 4,889 $ 4,433 $ 3,850 $ 2,669 $ 263 $ 400 $ 90 -- -- 2.37 2.55 -- -- 2.44(d) 2.32 2.30 2.37 2.56 2.53 2.33 2.44(d) (.90) (.79) (.79)(a) (.64)(a) (1.11) (.82) (.86)(a)(d) 59 39 72 41 59 39 72 (a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return total return and does not reflect a sales charge. (d) Annualized
============================================================================================================= CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------- for the period April 30, 1996 for the year ended for the year ended (Commencement) December 31, December 31, to December 31, - ------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- $ 12.54 $ 11.36 $ 10.98 $ 9.08 $ 12.44 $ 11.37 $ 11.73 - ------------------------------------------------------------------------------------------------------------ (.06) (.02) (.01) .03 (.05) (.01) (.08) 1.18 2.37 2.15 2.13 1.18 2.35 1.53 - ------------------------------------------------------------------------------------------------------------- 1.12 2.35 2.14 2.16 1.13 2.34 1.45 - ------------------------------------------------------------------------------------------------------------- -- .03 -- .01 -- -- -- -- -- .08 -- -- -- .08 .28 1.14 1.68 .25 .28 1.27 1.73 - ------------------------------------------------------------------------------------------------------------- .28 1.17 1.76 .26 .28 1.27 1.81 - ------------------------------------------------------------------------------------------------------------- $ 13.38 $ 12.54 $ 11.36 $ 10.98 $ 13.29 $ 12.44 $ 11.37 ============================================================================================================= 9.01(b) 20.74(b) 19.59(b) 23.94(b) 9.16(b) 20.70(b) 12.37(c) $23,975 $20,071 $13,473 $ 8,868 $ 643 $ 4,356 $ 28 2.33 2.31 2.55 2.75 2.27 2.23 3.02(d) (.45) (.13) (.06) .27 (.39) (.05) (.53)(d) 108 36 138 81 108 36 136 ============================================================================================================
113 [IVY LEAF LOGO]
======================================================================================================================= IVY US BLUE CHIP FUND CLASS A CLASS B CLASS C ------------------------------------------- For the period For the period For the year November 2, 1998 November 6, 1998 ended (Commencement) (Commencement) December 31, to December 31, to December 31, - ----------------------------------------------------------------------------------------------------------------------- SELECTED PER SHARE DATA 1999 1998 1998 1998 ------------- ------------------------------------------- Net asset value, beginning of period..................... $10.00 $10.30 $10.30 ------------- ------------------------------------------- Income (loss) from investment operations Net investment loss (a)(b)............................. -- (.01) (.01) Net gains or losses on securities (both realized and unrealized)(a)....................................... .74 .43 .43 ------------- ------------------------------------------- Total from investment operations....................... .74 .42 .42 ------------- ------------------------------------------- Net asset value, end of period........................... $10.74 $10.72 $10.72 ============= =========================================== Total return (%)(c)...................................... 7.40 4.08 4.08 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................. $ 726 $1,047 $ 110 Ratio of expenses to average net assets (%) With expense reimbursement (%)(d)...................... 1.43 2.13 2.22 Without expense reimbursement (%)(d)................... 6.34 7.04 7.13 Ratio of net investment income (loss) to average net assets (%)(a)(b)(d)................................ .02 (.68) (.77) Portfolio turnover rate (%).............................. 3 3 3
========================================================================================================================== IVY US EMERGING GROWTH FUND CLASS A --------------------------------------------------------------- for the year ended December 31, - -------------------------------------------------------------------------------------------------------------------------- SELECTED PER SHARE DATA 1999 1998 1997 1996 1995 ------------------------------------------------------------------ Net asset value, beginning of period................... $ 27.67 $ 26.54 $ 24.12 $ 18.38 ------------------------------------------------------------------ Income (loss) from investment operations Net investment loss.................................. (.44)(a) (.41)(a) (.35) (.24) Net gains or losses on securities (both realized and unrealized)........................................ 5.42(a) 1.54(a) 4.84 7.90 ------------------------------------------------------------------ Total from investment operations..................... 4.98 1.13 4.49 7.66 ------------------------------------------------------------------ Less distributions Distributions from capital gains..................... -- -- 2.07 1.92 Returns of capital................................... -- -- -- -- ------------------------------------------------------------------ Total distributions.................................. -- -- 2.07 1.92 ------------------------------------------------------------------ Net asset value, end of period......................... $ 32.65 $ 27.67 $ 26.54 $ 24.12 ================================================================== Total return (%)....................................... 18.00(c) 4.26(c) 18.52(c) 42.07(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............... $62,961 $64,910 $55,944 $39,456 Ratio of expenses to average net assets With expense reimbursement (%)....................... -- -- -- -- Without expense reimbursement (%).................... 1.70 1.67 1.76 1.95 Ratio of net investment loss to average net assets (%).................................................. (1.48) (1.37) (1.31) (1.39) Portfolio turnover rate (%)............................ 67 65 68 86 ==========================================================================================================================
22 114
============================================================================================================ CLASS B CLASS C (a) Based on - ------------------------------------------------------------------------------------------------------------ average shares for the period outstanding. April 30, 1996 for the year ended for the year ended (Commencement) (b) Net investment December 31, December 31, to December 31, income (loss) is net of - ------------------------------------------------------------------------------------------------------------ expenses reimbursed 1999 1998 1997 1996 1995 1999 1998 1997 1996 by manager. - ------------------------------------------------------------------------------------------------------------ (c) Total return does $ 27.26 $ 26.33 $ 24.12 $ 18.38 $ 27.23 $ 26.29 $ 29.69 not reflect a sales - ------------------------------------------------------------------------------------------------------------ charge. (.65)(a) (.33)(a) (.40) (.35) (.63)(a) (.34)(a) (.14) 5.32(a) 1.26(a) 4.68 7.85 5.31(a) 1.28(a) (1.19) (d) Annualized - ------------------------------------------------------------------------------------------------------------ 4.67 .93 4.28 7.50 4.68 .94 (1.33) (e) Total return - ------------------------------------------------------------------------------------------------------------ represents aggregate -- -- 2.07 1.76 -- -- 2.07 total return and -- -- -- -- -- -- -- does not reflect - ------------------------------------------------------------------------------------------------------------ a sales charge. -- -- 2.07 1.76 -- -- 2.07 - ------------------------------------------------------------------------------------------------------------ $ 31.93 $ 27.26 $ 26.33 $ 24.12 $ 31.91 $ 27.23 $ 26.29 ============================================================================================================ 17.13(c) 3.53(c) 17.65(c) 41.03(c) 17.19(c) 3.58(c) (4.48)(e) $52,940 $47,789 $35,321 $13,985 $ 9,664 $ 9,484 $ 4,018 -- -- -- -- 2.45 2.43 2.52 2.70 2.40 2.39 2.52(d) (2.23) (2.13) (2.07) (2.14) (2.18) (2.09) (2.07)(d) 67 65 66 86 67 65 68
23 115 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 24 116 Account Application FUND USE ONLY ________________________ Account Number ________________________ Dealer/Branch/Rep ________________________ Account Type/Soc Cd [IVY FUNDS LOGO] Please mail applications and checks to: Ivy Mackenzie Services Corp., P.O. Box 3022, Boca Raton, Florida 33431-0922 _________________________________________________________________________ This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. _________________________________________________________________________ 1 REGISTRATION Name ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Address _________________________________________________________________ City____________________________ State ___________________ Zip __________ Phone # (day) (_____)____________________________________________________ Phone # (evening) (_____)________________________________________________ __ Individual __ UGMA/UTMA __ Sole proprietor __ Joint tenant __ Corporation __ Trust __ Estate __ Partnership __ Other Date of trust ___________Minor's state of residence____________________ 2 TAX I.D. Citizenship: ___ U.S. ___Other (please specify):_________________ Social security #___-__-____ or Tax identification #_________________ Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) Please see the "Dividends, distributions and taxes" section of the Prospectus for additional information on completing this section. 3 DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify IMSC of any purchases made under a Letter of Intent or Rights of Accumulation. Dealer name___________________________________________________________ Branch office address_________________________________________________ City ______________________ State ______________________ Zip _________ Representative's name _______________________________________________ Representative's #__________________ Representative's phone___________ Authorized signature of dealer________________________________________ 4 INVESTMENTS A. Enclosed is my check ($1,000 minimum) for $__________ made payable to the appropriate fund. Please invest it in: ______Class A _____Class C _______Class B _____Class I shares ("*" Funds only) of the following fund(s): $ _____________Ivy Growth Fund $ _____________Ivy US Blue Chip Fund* $ _____________Ivy Growth with Income Fund $ _____________Ivy US Emerging Growth Fund
B. I qualify for a reduction or elimination of the sales charge due to the following privilege (applies only to Class A shares): ___ New Letter of Intent (if ROA or 90-day backdate privilege is applicable, provide account(s) information below.) ___ ROA with the account(s) listed below. ___ Existing Letter of Intent with the account(s) listed below. Fund name:_________________________ Fund name: ______________________ Account #:_________________________ Account #: ______________________ If establishing a Letter of Intent, you will need to purchase Class A shares over a 13-month period in accordance with the provisions in the Prospectus. The aggregate amount of these purchases will be at least equal to the amount indicated below (see Prospectus for minimum amount required for reduced sales charges). ____ $50,000 ____ $100,000 ____ $250,000 ____ $500,000 C. FOR DEALER USE ONLY Confirmed trade orders: ____________________ __________________ __________________ Confirm Number Number of Shares Trade Date
117 5 DISTRIBUTION OPTIONS I would like to reinvest dividends and capital gains into additional shares in this account at net asset value unless a different option is checked below. A. ___ Reinvest all dividends and capital gains into additional shares of the same class of a different Ivy fund account. Fund name:____________________________________________________ Account #:____________________________________________________ B. ___ Pay all dividends in cash and reinvest capital gains into additional shares of the same class in this account or a different Ivy fund account. Fund name: ___________________________________________________ Account #:____________________________________________________ C. ___ Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT TO: _____ the address listed in the registration _____ the special payee listed in Section 7A (by mail) _____ the special payee listed in Section 7B (by EFT) 6 OPTIONAL SPECIAL FEATURES A. AUTOMATIC INVESTMENT METHOD (AIM) ___ I wish to have my bank account listed in section 7B automatically debited via EFT on a predetermined frequency and invested into my Ivy Fund account listed below. 1. Withdraw $_____________________ for each time period indicated below and invest my bank proceeds into the following Ivy fund: Fund name: __________________________________________________________ Share class: ___ Class A ___Class B ___Class C Account #: __________________________________________________________ 2. Debit my bank account: ____Annually (on the ____day of the month of_______________________). ___ Semiannually (on the ____ day of the months of ___ and ___). ___ Quarterly (on the ___ day of the first/second/third month of each calendar quarter). (CIRCLE ONE) ___ Monthly* ___ once per month on the ___ day ___ twice per month on the ____ days ___ 3 times per month on the ____ days ___ 4 times per month on the ____ days B. SYSTEMATIC WITHDRAWAL PLANS (SWP)** ___ I wish to have my Ivy Fund account automatically debited on a predetermined frequency and the proceeds sent to me per my instructions below. 1. Withdraw ($50 minimum) $______for each time period indicated below from the following Ivy Fund account: Fund name: ___________________________________________________ Share class: __ Class A __ Class B __ Class C Account #: ___________________________________________________ 2. Withdraw from my Ivy Fund account: ___ Annually (on the _____ day of the month of ___________). ___ Semiannually (on the _____ day of the months of _____ and _____). ___ Quarterly (on the _____ day of the first/second/third month of each calendar quarter. (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the _____ days ___ 3 times per month on the _____ days ___ 4 times per month on the _____ days 3. I request the withdrawal proceeds be: ___ sent to the address listed in the registration ___ sent to the special payee listed in section 7A or 7B. ___ invested into additional shares of the same class of a different Ivy fund: Fund name: _____________________________________________ Account #: _____________________________________________ Note: A minimum balance of $5,000 is required to establish a SWP. 6. OPTIONAL SPECIAL FEATURES (CONT.) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** ___ yes ___ no By checking "yes" immediately above, I authorize IMSC to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may be wire transferred to the bank account designated ($1,000 minimum). (COMPLETE SECTION 7B). D. TELEPHONE EXCHANGES** ___ yes ___ no By checking "yes" immediately above, I authorize exchanges by telephone among the Ivy funds upon instructions from any person as more fully described in the Prospectus. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone exchange privilege will be provided automatically. E. TELEPHONIC REDEMPTIONS** ___ yes ___ no By checking "yes" immediately above, the Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds are to be payable to the shareholder of record and mailed to the address of record. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone redemption privilege will be provided automatically. * There must be a period of at least seven calendar days between each investment (AIM)/withdrawal (SWP) period. ** This option may not be used if shares are issued in certificate form. 7 SPECIAL PAYEE A. MAILING ADDRESS: Please send all disbursements to this payee: Name of bank or individual ______________________________________________ Account # (if applicable) _______________________________________________ Street __________________________________________________________________ City _____________________________ State ______________________ Zip _____ B. FED WIRE/EFT INFORMATION Financial institution ___________________________________________________ ABA #____________________________________________________________________ Account #________________________________________________________________ Street___________________________________________________________________ City ________________________ State ____________________ Zip _________ (PLEASE ATTACH A VOIDED CHECK.) 8 SIGNATURES Investors should be aware that the failure to check the "No" under Section 6D or 6E above means that the Telephone Exchange/ Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Please see "How to exchange shares" and "How to redeem shares" in the Prospectus for more information on these privileges. I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this application by reference. I am certifying my taxpayer information as stated in Section 2. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. __________________________________________ ____________________________ Signature of Owner, Custodian, Trustee or Date Corporate Officer __________________________________________ ____________________________ Signature of Joint Owner, Co-Trustee or Date Corporate Officer DETACH ON PERFORATION TO MAIL (Remember to sign Section 8) 118 * Symbol not assigned as of this printing. - -------------------------------------------------------------------------------- - QUOTRON SYMBOLS AND CUSIP NUMBERS
- -------------------------------------------------------------------------------- FUND SYMBOL CUSIP - -------------------------------------------------------------------------------- Ivy Growth Fund - Class A IVYFX 466002102 Ivy Growth Fund - Class B IVYBX 466002201 Ivy Growth Fund - Class C IVYCX 465897627 Ivy Growth with Income Fund - Class A IVYIX 46600K102 Ivy Growth with Income Fund - Class B IGIBX 46600K300 Ivy Growth with Income Fund - Class C IGICX 465897619 Ivy US Blue Chip Fund - Class A * 465898609 Ivy US Blue Chip Fund - Class B * 465898708 Ivy US Blue Chip Fund - Class C * 465898807 Ivy US Blue Chip Fund - Class I * 465898872 Ivy US Emerging Growth Fund - Class A IVEGX 465897106 Ivy US Emerging Growth Fund - Class B IVEBX 465897205 Ivy US Emerging Growth Fund - Class C IVGEX 465897635
* Symbol not assigned as of this printing. 119 (Ivy Funds Logo) -- HOW TO RECEIVE MORE INFORMATION ABOUT THE FUNDS Additional information about the Funds and their investments is contained in the Funds' Statement of Additional Information dated ___________, 2000 (the "SAI"), which is incorporated by reference into this Prospectus, and the Funds' annual and semiannual reports to shareholders. Each Fund's annual report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its most recent fiscal year. The SAI and the Funds' annual and semiannual reports are available upon request and without charge from the Distributor at the following address and phone number. Ivy Mackenzie Distributors, Inc. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432 800.456.5111 Information about the Funds (including the SAI and the Funds' annual and semiannual reports) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (please call 1-202-942-8090 for further details). Reports and other information about the Funds are also available on the EDGAR Database on the SEC's Internet Website (www.sec.gov), and copies of this information may be obtained, upon payment of a copying fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009. -- SHAREHOLDER INQUIRIES Please call Ivy Mackenzie Services Corp., the Funds' transfer agent, regarding any other inquiries about the Funds at 800.777.6472. www.ivymackenzie.com E-mail: invest@ivymackenzie.com Investment Company Act File No. 811-1028 120 IVY LOGO This is your prospectus from IVY MACKENZIE DISTRIBUTORS, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 800.456.5111 _________, 2000 U.S. EQUITY FUNDS ADVISOR CLASS SHARES IVY GROWTH FUND IVY GROWTH WITH INCOME FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND Ivy Fund is a registered open-end investment company consisting of twenty-one separate portfolios. This Prospectus relates to the Advisor Class shares of the four funds listed above (the "Funds"). The Funds also offer Class A, Class B, and Class C shares (and Class I shares, in the case of Ivy US Blue Chip Fund), which are described in a separate prospectus. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. Investments in the Funds are not deposits of any bank and are not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. -- CONTENTS 2 Ivy Growth Fund 4 Ivy Growth with Income Fund 6 Ivy US Blue Chip Fund 8 Ivy US Emerging Growth Fund 10 Additional information about investment strategies and risks 12 Management 13 Shareholder information 17 Financial highlights 21 Account application OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, Massachusetts CUSTODIAN AUDITORS Brown Brothers Harriman & Co. __________________________ Boston, Massachusetts Fort Lauderdale, Florida TRANSFER AGENT INVESTMENT MANAGER Ivy Mackenzie Services Corp. Ivy Management, Inc. PO Box 3022 700 South Federal Highway Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432 800.777.6472 800.456.5111
MACKENZIE LOGO 121 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GROWTH FUND - -------------------------------------------------------------------------------- (Globe Artwork) IVY GROWTH FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth, with current income being a secondary consideration. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in the equity securities of U.S. companies of any size. The Fund's portfolio is divided into two segments, each of which is managed according to the investment style of its portfolio manager (such as growth or value). - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. SMALL AND MEDIUM-SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger more established companies, since smaller companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 2 122 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on April 30, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
------------------------------------------------------------- ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 -------------------------------------------------------------
[Insert 1999 Bar Graph] * Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter _____ '99: _____% Worst quarter _____'99: ______%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 - --------------------------------------------------------------------------- Advisor Class S&P 500 Index Wilshire 5000 - --------------------------------------------------------------------------- Past year.............. _____% _____% _____% Since Inception*....... _____% _____% _____%
* Advisor Class shares of the Fund were first sold on April 30, 1998. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)....................................... none Maximum deferred sales charge (load)(as a percentage of purchase price)................ none Maximum sales charge (load) imposed on reinvested dividends......................... none Redemption fee*.............................. none Exchange fee................................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- Management fees*........................... 0.85% Distribution and/or service (12b-1) fees............................... none Other expenses............................. 0.33% Total annual Fund operating expenses......................... 1.18%
*Management fees are reduced to 0.75% for net assets over $350 million. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------------------- YEAR - ----------------------------- 1st $ 120 3rd 375 5th 649 10th 1,432
3 123 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY GROWTH WITH INCOME FUND - -------------------------------------------------------------------------------- (Globe) IVY GROWTH WITH INCOME FUND - -- INVESTMENT OBJECTIVE The Fund seeks long term growth, with current income being a secondary consideration. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests almost exclusively in U.S. equity securities, a number of which pay dividends. Among the chief characteristics that the Fund's manager seeks in selecting securities are: - - stock prices that appear low relative to the company's expected profitability; - - financial security with capitalizations over $100 million; and - - more than three years of operating history. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Common stock represents a proportionate ownership interest in a company. As a result, the value of common stock rises and falls with a company's success or failure. The market value of common stock can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's stock portfolio is not performing as well as expected. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking relatively consistent performance without the volatility of more aggressive growth funds. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on April 30, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS for the year ending FOR ADVISOR CLASS SHARES* December 31 - --------------------------------------------------------
[Insert 1999 Bar Graph] * Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter _____ '99: _____% Worst quarter _____'99: ______%
AVERAGE ANNUAL TOTAL RETURNS for the periods ending December 31, 1999 - -------------------------------------------------------------------------------------------- Morningstar Mid-Cap Blend Advisor Class S&P 500 Index Wilshire 5000 Universe - -------------------------------------------------------------------------------------------- Past year.............. _____% _____% _____% _____% Since Inception*....... _____% _____% _____% _____%
* Advisor Class shares of the Fund were first sold on April 30, 1998. 4 124 -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment ----------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................ none Maximum deferred sales charge (load) (as a percentage of purchase price)...................... none Maximum sales charge (load) imposed on reinvested dividends.......................................... none Redemption fee*.................................... none Exchange fee....................................... none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- Management fees............................ 0.75% Distribution and/or service (12b-1) fees............................... none Other expenses............................. 0.45% Total annual Fund operating expenses......................... 1.20%
- -------------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be as follows:
- ----------------------------- YEAR - ----------------------------- 1st $ 122 3rd 381 5th 660 10th 1,455
5 125 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Globe) IVY US BLUE CHIP FUND - -- INVESTMENT OBJECTIVE The Fund seeks long term growth, with current income being a secondary consideration. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in the common stocks of U.S. companies occupying major market positions that are expected to be maintained or enhanced over time (commonly known as "Blue Chip" companies). The median market capitalization of companies targeted for investment is expected to be at least $5 billion. The Fund's manager uses an equity style that focuses on both growth and value. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Common stock represents a proportionate ownership interest in a company. The market value of common stock can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's stock portfolio is not performing as well as expected. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 6 126 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on November 2, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. Annual Total Returns for the year ending For Advisor Class Shares* December 31 - -------------------------------------------------------------------------------
[Insert Bar Graph] * Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter __ '99: __% Worst quarter __ '99: __%
Average Annual for the periods ending December 31, 1999 Total Returns - ----------------------------------------------------------------------------------- Advisor Class - ----------------------------------------------------------------------------------- Past Year % % % Since Inception* % % %
* Advisor Class shares of the Fund were first sold on November 2, 1998. -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment ----------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................ none Maximum deferred sales charge (load) (as a percentage of purchase price)...................... none Maximum sales charge (load) imposed on reinvested dividends.......................................... none Redemption fee*.................................... none Exchange fee....................................... none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ----------------------------------------------------- Management fees............................ 0.75% Distribution and/or service (12b-1) fees............................... none Other expenses............................. 5.24% Total annual Fund operating expenses......................... 5.99% Expenses reimbursed*....................... 4.91% Net Fund operating expenses*............... 1.08%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.15% of the Fund's average net assets (excluding Rule 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- --------------------------- YEAR - --------------------------- 1st $110 3rd 576 5th ___ 10th ___
7 127 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY US EMERGING GROWTH FUND - -------------------------------------------------------------------------------- (Globe) IVY US EMERGING GROWTH FUND - -- INVESTMENT OBJECTIVE The Fund seeks long-term growth, (with current income being a secondary consideration). - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in the equity securities of small- and medium-sized U.S. companies that are in the early stages of their life cycles and that the Fund's manager believes have the potential to increase their sales and earnings at above-average rates. These companies typically are selected from within the technology, health care, entertainment, and business and consumer services sectors, and may include companies engaged in initial public offerings. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Common stock represents a proportionate ownership interest in a company. The market value of common stock can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's stock portfolio is not performing as well as expected. SMALL AND MEDIUM SIZED COMPANY RISK: Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger more established companies, since small companies tend to be thinly traded and because they are subject to greater business risk. Transaction costs in smaller company stocks may also be higher than those of larger companies. IPO RISK: Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 8 128 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on February 18, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. Annual Total Returns for the year ending For Advisor Class Shares* December 31 - -------------------------- ----------------------------- [Insert Bar Graph] *Any applicable account fees are not reflected and if they were the returns shown above would be lower. BEST QUARTER __ '99: __% WORST QUARTER __ '99: __% Average Annual for the periods ending December 31, 1999 Total Returns - -------------- ------------------------------------------------------------- Advisor Class Russell 2000 Growth Morningstar Small Index Growth Universe Past Year __% __% __% Since Inception* __% __% __% *Advisor Class shares of the Fund were first sold on February 18, 1998. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)....................................... none Maximum deferred sales charge (load)(as a percentage of purchase price)................ none Maximum sales charge (load) imposed on reinvested dividends......................... none Redemption fee*.............................. none Exchange fee................................. none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- Management fees............................ 0.85% Distribution and/or service (12b-1) fees............................... none Other expenses............................. 0.37% Total annual Fund operating expenses......................... 1.22%
- ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------------------- YEAR - ----------------------------- 1st $ 124 3rd 387 5th 670 10th 1,477
9 129 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS - -- PRINCIPAL STRATEGIES IVY GROWTH FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in mid- and large-cap U.S. stocks, and seeks to provide additional diversification by investing a portion of its assets in small-cap U.S. stocks and large-cap international stocks. The Fund is managed using a combination of investment styles. Approximately one half of the Fund's portfolio is comprised of companies that have had a proven and consistent record of earnings, but whose prices appear to be low relative to their underlying profitability. The other half of the Fund's portfolio is invested in equity securities of small- and medium-sized U.S. companies that are in the early stages of their life cycles and that are believed to have the potential to increase their sales and earnings at above average rates. IVY GROWTH WITH INCOME FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in the common stock of domestic corporations. Companies targeted for investment typically have stock prices that appear low relative to the their expected profitability, rising earnings, a minimum three-year operating history and capitalizations over $100 million. Dividend-paying ability, financial strength and trading liquidity are also taken into account. IVY US BLUE CHIP FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the common stock of U.S. companies occupying leading market positions that are expected to be maintained or enhanced over time (commonly known as "Blue Chip" companies). Blue Chip companies tend to have a lengthy history of profit growth and dividend payment, and a reputation for quality management structure, products and services. Securities of Blue Chip companies are generally considered to be highly liquid, since they are well supplied in the marketplace relative to their smaller-capitalized counterparts and because their trading volume tends to be higher. The median market capitalization of companies targeted for investment is expected to be at least $5 billion. IVY US EMERGING GROWTH FUND: The Fund seeks to achieve its principal objective of long term capital growth by investing primarily in the equity securities of domestic corporations that are small and medium sized. Companies targeted for investment typically are in the early stages of their life cycles and are believed by the Fund's manager to have the potential to increase their sales and earnings at above-average rates. These companies typically are selected from within the technology, health care, entertainment, and business and consumer services sectors, which have presented attractive growth opportunities in recent years. Portfolio holdings are reviewed regularly for valuation, relative strength and changes in earnings estimates. ALL FUNDS: Each Fund may from time to time take a temporary defensive position and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short-term notes and other money market securities. When a Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk. - -- PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of a Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. Each Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in a Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: Following is a description of the general risk characteristics of the investment techniques that each Fund's manager considers important in achieving the Fund's investment objective or in managing its exposure to risk (and that could therefore have a significant effect on the Fund's returns). The risks of certain portfolio management practices that are not principal strategies of the Funds (such as borrowing) are also described below. Other investment methods that the Funds may use (such as derivative investments), but that are not likely to play a key role in their overall investment strategies, are described in the Fund's Statement of Additional Information (see back cover page for information on how you can receive a free copy). 10 130 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RISK CHARACTERISTICS: - - EQUITY SECURITIES: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller-company securities may also be higher than those of larger companies. Investors in Ivy US Emerging Growth Fund should note that these risks are heightened in the case of securities issued through IPOs. - - BORROWING: For temporary purposes, each Fund may borrow up to 10% of the value of its total assets from qualified banks. Borrowing may exaggerate the effect on the Fund's share value of any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. 11 131 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- MANAGEMENT - -- INVESTMENT ADVISOR Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 IMI provides investment advisory and business management services to the Fund. IMI is an SEC-registered investment advisor with over $5 billion in assets under management, and provides similar services to the other fifteen series of Ivy Fund. For the fiscal year ending December 31, 1999, the Funds paid IMI a fee that was equal to the following percentages of the Funds' respective average net assets: - - Ivy Growth Fund, 0.85%; - - Ivy Growth with Income Fund, 0.75%; - - Ivy Blue Chip Fund, 0.75%; and - - Ivy US Emerging Growth Fund, 0.85% - -- PORTFOLIO MANAGEMENT IVY GROWTH FUND: The Fund's portfolio is divided into two different segments, which are managed by the following individuals: - - James W. Broadfoot, President of IMI and a Vice President of Ivy Fund, manages the U.S. Emerging Growth segment of the Fund's portfolio. Before joining IMI in 1990, Mr. Broadfoot was the principal in an investment counsel firm specializing in emerging growth companies. He has over 25 years of professional investment experience, holds an MBA from the Wharton School of Business and is a Chartered Financial Analyst. - - Paul P. Baran, a Senior Vice President of IMI, manages the core growth segment of the Fund's portfolio. Before joining IMI, Mr. Baran was Senior Vice President/Chief Investment Officer of Central Fidelity National Bank. He has 24 years of professional investment experience and is a Chartered Financial Analyst. He has an MBA from Wayne State University. IVY GROWTH WITH INCOME FUND AND IVY US BLUE CHIP FUND: Both Funds are managed by Paul P. Baran (see "Ivy Growth Fund," above). IVY US EMERGING GROWTH FUND: The Fund is managed by James W. Broadfoot (see "Ivy Growth Fund," above). 12 132 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHAREHOLDER INFORMATION - -- PRICING OF FUND SHARES Each Fund calculates its share price by dividing the value of the Fund's net assets by the total number of its shares outstanding as of the close of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the Exchange is open for trading (normally any weekday that is not a national holiday). Each portfolio security that is listed or traded on a recognized stock exchange is valued at the security's last quoted sale price on the exchange on which it is principally traded. If no sale is reported at that time, the average between the last bid and asked prices is used. Securities and other Fund assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Funds' Board of Trustees. IMI may also price a foreign security at its fair value if events materially affecting the estimated value of the security occur between the close of the foreign exchange on which the security is principally traded and the time as of which a Fund prices its shares. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of a Fund in an attempt to profit from short-term market movements. When such fair-value pricing occurs, however, there may be some period of time during which a Fund's share price and/or performance information is not available. The number of shares you receive when you place a purchase or exchange order, and the payment you receive after submitting a redemption request, is based on a Fund's net asset value ("NAV") next determined after your instructions are received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent) or by your registered securities dealer. Since Ivy Growth Fund may invest in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price their shares, the Fund's share value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. - -- HOW TO BUY SHARES Please read the sections below carefully before investing. Advisor Class shares are offered through this Prospectus only to the following investors: - - trustees or other fiduciaries purchasing shares for employee benefit plans that are sponsored by organizations that have at least 1,000 employees; - - any account with assets of at least $10,000 if (a) a financial planner, trust company, bank trust department or registered investment adviser has investment discretion, and where the investor pays such person as compensation for his advice and other services an annual fee of at least 0.50% on the assets in the account, or (b) such account is established under a "wrap fee" program and the account holder pays the sponsor of the program an annual fee of at least 0.50% on the assets in the account; - - officers and Trustees of Ivy Fund (and their relatives); - - directors or employees of Mackenzie Investment Management Inc. or its affiliates; and - - directors, officers, partners, registered representatives, employees and retired employees (and their relatives) of dealers having a sales agreement with IMDI (or trustees or custodians of any qualified retirement plan or IRA established for the benefit of any such person. The following investment minimums, sales charges and expenses apply. Minimum initial investment*.............. $10,000 Minimum subsequent investment*........... $ 250 Initial sales charge..................... none CDSC..................................... none Service and distribution fees............ none
*Minimum initial and subsequent investments for retirement plans are $25. 13 133 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- - -- SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the end of this Prospectus. Enclose a check payable to the Fund you wish to invest in. You should note on the check that you wish to purchase Advisor Class shares (see page 13 for minimum initial investments.) Deliver your application materials to your registered representative or selling broker, or send them to one of the addresses below: - - BY REGULAR MAIL: Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 - - BY COURIER: Ivy Mackenzie Services Corp. 700 South Federal Highway Boca Raton, FL 33432-6114 - -- BUYING ADDITIONAL SHARES There are several ways to increase your investment in the Fund: - - BY MAIL: Send your check with a completed investment slip (attached to your account statement) or written instructions indicating the account registration, Fund number or name, and account number. Mail to one of the addresses above. - - THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. - - BY WIRE: Purchases may also be made by wiring money from your bank account to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call IMSC at 800.777.6472. Wiring instructions are as follows: First Union National Bank of Florida Jacksonville, FL ABA #063000021 Account #2090002063833 For further credit to: Your Account Registration Your Fund Number and Account Number - - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Ivy Fund account. Complete sections 6A and 7B of the Account Application. - -- HOW TO REDEEM SHARES SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your registered securities dealer or directly through IMSC. If you choose to redeem through your registered securities dealer, the dealer is responsible for properly transmitting redemption orders in a timely manner. If you choose to redeem directly through IMSC, you have several ways to submit your request: - - BY MAIL: Send your written redemption request to IMSC at one of the addresses at left. Be sure that all registered owners listed on the account sign the request. Medallion signature guarantees and supporting legal documentation may be required. When you redeem, IMSC will normally send redemption proceeds to you on the next business day, but may take up to seven days (or longer in the case of shares recently purchased by check). - - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or custodial account. To process your redemption order by telephone, you must have telephone redemption privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. - - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds electronically drawn each month from your Ivy Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. 14 134 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: - - BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. - - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. - - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. IMPORTANT REDEMPTION INFORMATION: - - If you own shares of more than one class of a Fund, the Fund will redeem first the shares having the highest 12b-1 fees, unless you instruct otherwise. - - The Fund may (on 60 days' notice) redeem the accounts of shareholders whose investment, including sales charges paid, has been less than $1,000 for more than 12 months. - - A Fund may take up to seven days (or longer in the case of shares recently purchased by check) to send redemption proceeds. - - A Fund may make payment for redeemed shares in the form of securities of the Fund taken at current values. - -- HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of another Ivy fund, subject to certain restrictions (see "Important exchange information"). SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as follows: - - BY MAIL: Send your written exchange request to IMSC at one of the addresses on page 14 of this Prospectus. Be sure that all registered owners listed on the account sign the request. - - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. IMPORTANT EXCHANGE INFORMATION: - - You must exchange into the same share class you currently own. - -- Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - - It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee (in the case of certain funds), or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. - -- DIVIDENDS, DISTRIBUTIONS AND TAXES - - The Funds generally declare and pay dividends and capital gain distributions (if any) at least once a year. - - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - - Reinvested dividends and distributions are added to your account at NAV and are not subject to a sales charge regardless of which share class you own. - - Cash dividends and distributions can be sent to you: - - BY MAIL: A check will mailed to the address of record unless otherwise instructed. - - BY ELECTRONIC FUNDS TRANSFER: Your proceeds will be directly deposited into your bank account. 15 135 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- US EQUITY FUNDS - -------------------------------------------------------------------------------- To change your dividend and/or distribution options, call IMSC at 800.777.6472. Dividends ordinarily will vary from one class to another. The Funds intend to declare and pay dividends annually. The Funds will distribute net investment income and net realized capital gains, if any, at least once a year. The Funds may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of a Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of a Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, are taxable to you as long-term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Funds' managers may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, they do not generally manage the Funds to optimize tax efficiencies. If shares of a Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by a Fund in October, November or December with a record date in such a month and paid by a Fund during January of the following calendar year. In certain years, you may be able to claim a credit or deduction on your income tax return for your share of foreign taxes paid by your Fund. Upon the sale or exchange of your Fund shares, you may realize a capital gain or loss which will be long term or short term, generally depending upon how long you held your shares. A Fund may be required to withhold U.S. Federal income tax at the rate of 31% of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service ("IRS") that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Funds, including the status of distributions from the Funds under applicable state or local law. 16 136 FINANCIAL HIGHLIGHTS The financial highlights tables are intended to help you understand each Fund's financial performance for the past five years (or less if a Fund has a shorter operating history), and reflects results for a single Fund share. The total returns in the table represent the rate an investor would have earned (or lost) each year on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been audited by __________________________, whose report, along with each Fund's financial statements, is included in the Fund's Annual Report to shareholders (which is available upon request). - --------------------------------------------------------------------------------
For the Period April 30, 1998 (Commencement) to December 31, IVY GROWTH FUND 1999 1998 - ------------------------------------------------------------------------------ --------------- ADVISOR CLASS SELECTED PER SHARE DATA Net asset value, beginning of period........................ $20.36 --------------- Income (loss) from investment operations Net investment income..................................... .03 Net gains or losses on securities (both realized and unrealized)............................................. (.06) --------------- Total from investment operations........................ (.03) --------------- Less distributions Dividends (from net investment income).................... .02 Distributions (from capital gains)........................ .40 --------------- Total distributions..................................... .42 --------------- Net asset value, end of period.............................. $19.91 =============== Total return (%)(a)......................................... (.14) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 347 Ratio of expenses to average net assets Without expense reimbursement (%)(b)...................... 1.18 Ratio of net investment income to average net assets (%)(b).................................................... .24 Portfolio turnover rate (%)................................. 59
(a) Total return represents aggregate total return and does not reflect a sales charge. (b) Annualized - --------------------------------------------------------------------------------
For the Period April 30, 1998 (Commencement) to December 31, IVY GROWTH WITH INCOME FUND 1999 1998 - ------------------------------------------------------------------------------ --------------- ADVISOR CLASS SELECTED PER SHARE DATA Net asset value, beginning of period........................ $13.88 --------------- Income (loss) from investment operations Net investment income..................................... .05 Net gains or losses on securities (both realized and unrealized)............................................. (.07) --------------- Total from investment operations........................ (.02) --------------- Less distributions From net realized gain.................................... .28 --------------- Total distributions..................................... .28 --------------- Net asset value, end of period.............................. $13.58 =============== Total return (%)(a)......................................... (.36) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 339 Ratio of expenses to average net assets (%)(b).............. 1.20 Ratio of net investment income to average net assets (%)(b).................................................... .68 Portfolio turnover rate (%)................................. 108
(a) Total return represents aggregate total return and does not reflect a sales charge. (b) Annualized 17 137 [IVY LEAF LOGO] - --------------------------------------------------------------------------------
For the period November 2, 1998 (Commencement) to December 31, IVY US BLUE CHIP FUND 1999 1998 - ------------------------------------------------------------------------------- ---------------- ADVISOR CLASS SELECTED PER SHARE DATA Net asset value, beginning of period........................ $10.00 ------ Income (loss) from investment operations Net investment income(a)(b)............................... .01 Net gains or losses on securities (both realized and unrealized)(a).......................................... .73 ------ Total from investment operations........................ .74 ------ Net asset value, end of period.............................. $10.74 ====== Total return (%)(c)......................................... 7.40 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 537 Ratio of expenses to average net assets (%) With expense reimbursement (%)(d)......................... 1.08 Without expense reimbursement (%)(d)...................... 5.99 Ratio of net investment income to average net assets (%)(b)(d)................................................. .37 Portfolio turnover rate (%)................................. 3
(a) Based on average shares outstanding. (b) Net investment loss is net of expenses reimbursed by Manager. (c) Total return represents aggregate total return since November 6, 1998 (when the Fund became available for sale to the public) and does not reflect a sales charge. (d) Annualized - --------------------------------------------------------------------------------
For the period February 18, 1998 (Commencement) to December 31, IVY US EMERGING GROWTH FUND 1999 1998 - ------------------------------------------------------------------------------------------------- ADVISOR CLASS SELECTED PER SHARE DATA Net asset value, beginning of period........................ $28.82 ------ Income (loss) from investment operations Net investment loss (a)................................... (.23) Net gains or losses on securities (both realized and unrealized)(a).......................................... 4.20 ------ Total from investment operations........................ 3.97 ------ Net asset value, end of period.............................. $32.79 ====== Total return (%)(b)......................................... 13.78 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 740 Ratio of expenses to average net assets Without expense reimbursement (%)(c)...................... 1.22 Ratio of net investment loss to average net assets (%)(c)... (1.00) Portfolio turnover rate (%)................................. 67
(a) Based on average shares outstanding. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized 19 138 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 20 139 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 21 140 Account Application FUND USE ONLY ___________________ Account Number ___________________ Dealer/Branch/Rep ___________________ Account Type/Soc Cd [IVY FUNDS LOGO] Please mail applications and checks to: USE FOR ADVISOR Ivy Mackenzie Services Corp., CLASS ONLY P.O. Box 3022, Boca Raton, Florida 33431-0922 This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. 1 REGISTRATION Name ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Address__________________________________________________________________ City _________________________________________ State _______ Zip ________ Phone # (day) (___)_________________ Phone # (evening) (__)_____________ __ Individual __ UGMA/UTMA __ Sole proprietor __ Joint tenant __ Corporation __ Trust __ Estate __ Partnership __ Other Date of trust ________________ Minor's state of residence ______________ 2 TAX I.D. Citizenship: __ U.S. __ Other (please specify): __________________ Social security # _____-____-_______ or Tax identification _____________ Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) Please see the "Dividends, distributions and taxes" section of the Prospectus for additional information on completing this section. 3 DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify IMSC of any purchases made under a Letter of Intent or Rights of Accumulation. Dealer name _____________________________________________________________ Branch office address ___________________________________________________ City ______________________________ State _______________ Zip _________ Representative's name ___________________________________________________ Representative's # _________________ Representative's phone _____________ Authorized signature of dealer __________________________________________ 4 INVESTMENTS A. Enclosed is my check ($10,000 minimum) for $__________ made payable to the appropriate fund. Please invest it in Advisor Class Shares of the following fund(s): $ _______________ Ivy Growth Fund $ _______________ Ivy US Blue Chip Fund $ _______________ Ivy Growth with Income Fund $ _______________ Ivy US Emerging Growth Fund
B. FOR DEALER USE ONLY Confirmed trade orders: _____________ ________________ __________ Confirm Number Number of Shares Trade Date 141 5 DISTRIBUTION OPTIONS I would like to reinvest dividends and capital gains into additional shares in this account at net asset value unless a different option is checked below. A. ___ Reinvest all dividends and capital gains into additional shares of a different Ivy fund account. Fund name: ____________________________________________________ Account #: ____________________________________________________ B. ___ Pay all dividends in cash and reinvest capital gains into additional shares in this account or a different Ivy fund account. Fund name: ____________________________________________________ Account #: ____________________________________________________ C. ___ Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT TO: _____ the address listed in the registration _____ the special payee listed in Section 7A (by mail) _____ the special payee listed in Section 7B (by EFT) 6 OPTIONAL SPECIAL FEATURES A. AUTOMATIC INVESTMENT METHOD (AIM) ___ I wish to have my bank account listed in section 7B automatically debited via EFT on a predetermined frequency and invested into my Ivy Fund account listed below. 1. Withdraw $_____ for each time period indicated below and invest my bank proceeds in Advisor Class shares of the following Ivy fund: Fund name: ______________________________________________________ Account #: ______________________________________________________ 2. Debit my bank account: ___ Annually (on the ___ day of the month of _____________). ___ Semiannually (on the ___ day of the months of ___________ and ___________). ___ Quarterly (on the ___ day of the first/second/third month of each calendar quarter). (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the _____ days ___ 3 times per month on the _____ days ___ 4 times per month on the _____ days B. SYSTEMATIC WITHDRAWAL PLANS (SWP)** ___ I wish to have my Ivy Fund account automatically debited on a predetermined frequency and the proceeds sent to me per my instructions below. 1. Withdraw ($250 minimum) $_____ for each time period indicated below from the following Ivy Fund account: Fund name: ______________________________________________________ Account #: ______________________________________________________ 2. Withdraw from my Ivy Fund account: ___ Annually (on the _____ day of the month of __________). ___Semiannually (on the _____ day of the months of _______________ and ________________). ___ Quarterly (on the _____ day of the first/second/third month of each calendar quarter. (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the _____ days ___ 3 times per month on the _____ days ___ 4 times per month on the _____ days 3. I request the withdrawal proceeds be: ___ sent to the address listed in the registration ___ sent to the special payee listed in section 7A or 7B. ___ invested into additional Advisor Class shares of a different Ivy Fund: Fund name: ______________________________________________________ Account #: ______________________________________________________ Note: A minimum balance of $10,000 is required to establish a SWP. 6. OPTIONAL SPECIAL FEATURES (CONT.) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** ___ yes ___ no By checking "yes" immediately above, I authorize IMSC to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may be wire transferred to the bank account designated ($1,000 minimum). (COMPLETE SECTION 7B). D. TELEPHONE EXCHANGES** ___ yes ___ no By checking "yes" immediately above, I authorize exchanges by telephone among the Ivy funds upon instructions from any person as more fully described in the Prospectus. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone exchange privilege will be provided automatically. E. TELEPHONIC REDEMPTIONS** ___ yes ___ no By checking "yes" immediately above, the Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds are to be payable to the shareholder of record and mailed to the address of record. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone redemption privilege will be provided automatically. * There must be a period of at least seven calendar days between each investment (AIM)/withdrawal (SWP) period. ** This option may not be used if shares are issued in certificate form. 7 SPECIAL PAYEE A. MAILING ADDRESS: Please send all disbursements to this payee: Name of bank or individual _____________________________________________ Account # (if applicable) ______________________________________________ Street _________________________________________________________________ City _______________________________State ______________Zip ____________ B. FED WIRE/EFT INFORMATION Financial institution __________________________________________________ ABA # __________________________________________________________________ Account # ______________________________________________________________ Street _________________________________________________________________ City _______________________________State ______________Zip ____________ (PLEASE ATTACH A VOIDED CHECK.) 8 SIGNATURES Investors should be aware that the failure to check the "No" under Section 6D or 6E above means that the Telephone Exchange/ Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Please see "How to exchange shares" and "How to redeem shares" in the Prospectus for more information on these privileges. I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this application by reference. I am certifying my taxpayer information as stated in Section 2. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. _________________________________________ ______________________________ Signature of Owner, Custodian, Trustee or Date Corporate Officer _________________________________________ _______________________________ Signature of Joint Owner, Co-Trustee or Date Corporate Officer (Remember to sign Section 8) DETACH ON PERFORATION TO MAIL 142 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- QUOTRON SYMBOLS AND CUSIP NUMBERS
- ---------------------------------------------------------------------------------------- FUND SYMBOL CUSIP - ---------------------------------------------------------------------------------------- Ivy Growth Fund Advisor Class IVYVX 465897254 Ivy Growth with Income Fund Advisor Class IGIVX 465897247 Ivy US Blue Chip Fund Advisor Class * 465898864 Ivy US Emerging Growth Fund Advisor Class IVEVX 465897262 - ----------------------------------------------------------------------------------------
* Symbol not assigned as of this printing 143 'Ivy Funds Logo' -- HOW TO RECEIVE MORE INFORMATION ABOUT THE FUNDS Additional information about the Funds and their investments is contained in the Funds' Statement of Additional Information dated ____________, 2000 (the "SAI"), which is incorporated by reference into this Prospectus, and each Funds' annual and semiannual reports to shareholders. Each Fund's annual report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its most recent fiscal year. The SAI and annual and semiannual reports are available upon request and without charge from the Distributor at the following address and phone number: Ivy Mackenzie Distributors, Inc. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432 800.456.5111 Information about the Funds (including the SAI and annual and semiannual reports) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (please call 1-202-942-8090 for further details). Reports and other information about the Funds are also available on the EDGAR Database of the SEC's Internet Website (www.sec.gov), and copies of this information may be obtained, upon payment of a copying fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009. 01IUSADV0499 -- SHAREHOLDER INQUIRIES Please call Ivy Mackenzie Services Corp., the Funds' transfer agent, at 800.777.6472 regarding any other inquiries about the Funds. www.ivymackenzie.com E-mail: invest@ivymackenzie.com Investment Company Act File No. 811-1028 144 Ivy Funds Logo This is your prospectus from IVY MACKENZIE DISTRIBUTORS, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 800.456.5111 , 2000 FIXED INCOME FUNDS IVY BOND FUND IVY INTERNATIONAL STRATEGIC BOND FUND IVY MONEY MARKET FUND Ivy Fund is a registered open-end investment company consisting of twenty-one separate portfolios. This Prospectus relates to the Class A, Class B and Class C shares of the three funds listed above (the "Funds"), and the Class I shares of Ivy Bond Fund and Ivy International Strategic Bond Fund. These two Funds also offer Advisor Class shares, which are described in a separate prospectus. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. Investments in the Funds are not deposits of any bank and are not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. - -- CONTENTS 2 Ivy Bond Fund 4 Ivy International Strategic Bond Fund 6 Ivy Money Market Fund 8 Additional information about investment strategies and risks 12 Management 13 Shareholder information 20 Financial highlights 25 Account application OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, Massachusetts CUSTODIAN AUDITORS Brown Brothers Harriman & Co. Boston, Massachusetts Fort Lauderdale, Florida TRANSFER AGENT INVESTMENT MANAGER Ivy Mackenzie Services Corp. Ivy Management, Inc. PO Box 3022 700 South Federal Highway Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432 800.777.6472 800.456.5111
Mackenzie Logo 145 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY BOND FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY BOND FUND - -- INVESTMENT OBJECTIVE The Fund seeks a high level of current income. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in bonds rated in the four highest rating categories used by Moody's and S&P and similar investment grade fixed income securities. To increase its potential yield, the Fund may invest up to 35% of its net assets in low-rated debt securities (commonly referred to as "high yield" or "junk" bonds). The Fund may also invest a portion of its assets in foreign debt securities to diversify its holdings and to increase its potential return. Other securities and investment techniques that the Fund's management team considers important in achieving the Fund's investment objective (or in controlling the Fund's exposure to risk) include zero coupon bonds. The Fund's management team targets for investment companies whose creditworthiness is believed to be stable or improving. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when interest rates are rising. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. As much as 35% of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could significantly weaken the Fund's returns if the issuer defaults on its payment obligations. FOREIGN SECURITY AND EMERGING-MARKET RISK: The Fund may invest up to 20% of its net assets in foreign issuers. Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. market and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with new or developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking current income, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 2 146 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on September 6, 1985 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31 ------------------------------------------------------------- [CHART] '89 15.11% '90 4.26% '91 14.45% '92 8.16% '93 15.45% '94 -4.10% '95 17.41% '96 8.06% '97 11.87% '98 0.00% '99 %
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. Best quarter Q2 '89: 9.58% Worst quarter Q1 '90: (4.52%)
AVERAGE ANNUAL for the periods ending TOTAL RETURNS# December 31, 1998 ---------------------------------------------------------------------------------------------- MORNINGSTAR ------------------------------- CORPORATE MULTI- LONG- BOND SECTOR TERM GENERAL BOND BOND CLASS A CLASS B CLASS C CLASS I*** UNIVERSE UNIVERSE UNIVERSE ---------------------------------------------------------------------------------------------- Past year............ (4.75%) (5.77%) (1.81%) n/a 6.83% 1.20% 6.53% Past 5 years......... 5.33% n/a n/a n/a 6.29% 5.81% 6.98% Past 10 years........ 8.32% n/a n/a n/a 8.67% 8.45% 9.42% Since inception: Class B*............. n/a 6.15% n/a n/a 7.27% 7.21% 8.21% Class C**............ n/a n/a 7.04% n/a 8.09% 7.07% 9.25%
# Performance figures reflect any applicable sales charges. * The inception date for the Fund's Class B shares was April 1, 1994. ** The inception date for the Fund's Class C shares is April 30, 1996. Index performance is calculated from May 1, 1996. *** The Fund has had no outstanding Class I shares. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - --------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - --------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price).................. 4.75% none none none Maximum deferred sales charge (load) (as a percentage of purchase price).................. none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends.... none none none none Redemption fee*......... none none none none Exchange fee............ none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I** - ---------------------------------------------------------------- Management fees*....... 0.75% 0.75% 0.75% 0.75% Distribution and/or service (12b-1) fees... 0.25% 1.00% 1.00% none Other expenses......... 0.39% 0.38% 0.37% 0.30% Total annual Fund operating expenses..... 1.39% 2.13% 2.12% 1.05%
*Management Fees are reduced to 0.50% for net assets over $100 million. **The Fund has had no outstanding Class I shares. Percentages shown are estimates based on expenses for Class A shares. - -------------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- --------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - --------------------------------------------------------------------------------- 1st $ 708 $ 716 $ 216 $ 315 $ 215 $ 107 3rd 990 967 667 664 664 334 5th 1,292 1,344 1,144 1,139 1,139 579 10th 2,148 2,274 2,274 2,452 2,452 1,283
3 147 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL STRATEGIC BOND FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY INTERNATIONAL STRATEGIC BOND FUND - -- INVESTMENT OBJECTIVE The Fund seeks total return and, consistent with that objective, to maximize current income. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in a managed portfolio of foreign bonds. The Fund may also invest in U.S. bonds. The types of debt securities the Fund may hold include corporate, government, and mortgage or asset backed securities. At least 65% of the value of the Fund's portfolio is expected to be rated in the four highest rating categories used by Moody's and S&P. Among the other securities and investment techniques that the Fund's manager considers important in achieving the Fund's investment objective (or in controlling the Fund's exposure to risk) are: - - low rated debt securities (commonly referred to as "high yield" or "junk" bonds); and - - derivative investment techniques (such as options, futures, interest rate and credit swaps, and foreign currency exchange transactions). The Fund's manager invests in bonds and bond markets that are believed to be undervalued relative to other issuers or markets. In selecting bonds for the Fund's portfolio, the manager will consider yields, credit quality and the fundamental outlook for currency and interest rate trends in different parts of the world, and may also take into account the ability to hedge currency and local bond price risk. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when interest rates are rising. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Many of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could significantly weaken the Fund's returns if the issuer defaults on its payment obligations. NON-DIVERSIFICATION RISK: The Fund is classified as "non-diversified" under the Investment Company Act of 1940, and may therefore invest a greater percentage of its assets in a particular issuer than a "diversified" fund. As a result, the Fund may also be more susceptible than a diversified fund to the price movements of certain securities it holds in its portfolio. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. 4 148 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The risks of investing in foreign securities are more acute in countries with new or developing economies. DERIVATIVES RISK: The Fund may, but is not required to, use a range of derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific equity or fixed-income market movements) or to enhance potential gain. The use of these derivative investment techniques involves a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the judgment of the Fund's manager as to certain market movements is incorrect, the risk of losses that are greater than if the derivative technique(s) had not been used. -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking a mix of total return and current income, but who can accept potentially dramatic fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. -- PERFORMANCE INFORMATION The Fund has been operating for less than a year, so no performance information is available. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
SHAREHOLDER fees paid directly from FEES your investment - ------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................ 4.75% none none none Maximum deferred sales charge (load)(as a percentage of purchase price)................ none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends............. none none none none Redemption fee*....... none none none none Exchange fee.......... none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------ Management fees...... 0.75% 0.75% 0.75% 0.75% Distribution and/or service (12b-1) fees................. 0.25% 1.00% 1.00% none Other expenses....... 0.50% 0.50% 0.50% 0.41% Total annual Fund operating expenses*............ 1.50% 2.25% 2.25% 1.16%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.25% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 1.75% of the Fund's average net assets. - ------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ------------------------------------------------------------------------------------------------ (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - ------------------------------------------------------------------------------------------------ 1st $ 719 $ 728 $ 228 $ 328 $ 228 $118 3rd 1,121 1,106 806 806 806 475 5th _____ _____ ___ ___ ___ ___ 10th _____ _____ ___ ___ ___ ___
5 149 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY MONEY MARKET FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY MONEY MARKET FUND - -- INVESTMENT OBJECTIVE The Fund seeks to obtain as high a level of current income as is consistent with the preservation of capital and liquidity. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests in money market instruments maturing within thirteen months or less and maintains a portfolio with a dollar-weighted average maturity of 90 days or less. 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. Among the types of money market instruments that are likely to be included in the Fund's portfolio are: - - debt securities issued or guaranteed by the U.S. Government; - - obligations of domestic banks and savings and loans associations (including certificates of deposit and bankers' acceptances); - - high-quality commercial paper; - - high quality short-term corporate notes, bonds and debentures; and - - short-term repurchase agreements involving U.S. Government securities. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other money market funds. MARKET RISK: An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Thus, although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. INTEREST RATE RISK: Many of the Fund's portfolio holdings are susceptible to decline in a rising interest rate environment. CREDIT RISK: The issuers of the Fund's portfolio holdings could fail to meet their obligations on interest payments and/or principal repayments, which could cause the Fund to lose money. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking a combination of current income and stability of capital. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 6 150 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since its inception on April 3, 1987 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future.
TOTAL RETURNS for the years ending FOR CLASS A SHARES December 31 ------------------------------------------------------------- [CHART] '89 8.87% '90 7.69% '91 5.16% '92 2.81% '93 2.42% '94 4.21% '95 4.80% '96 4.47% '97 4.60% '98 4.51% '99 %
Best quarter Q3 '90: 1.94% Worst quarter Q3 '98: 0.38%
AVERAGE ANNUAL for the periods ending TOTAL RETURNS December 31, 1998 ------------------------------------------------------------------------------------------ CLASS A CLASS B CLASS C ------------------------------------------------------------------------------------------ Past year................................................... 4.51% 4.59% 4.55% Past 5 years................................................ 4.45% n/a n/a Past 10 years............................................... 4.88% n/a n/a Since inception*............................................ n/a 4.64% 5.30%
*The inception dates for the Fund's three classes of shares were as follows: Class A, April 3, 1987; Class B, January 1, 1996; and Class C, April 30, 1996. The Fund's 7-day yield as of December 31, 1998 was 4.11%. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
SHAREHOLDER fees paid directly from FEES your investment - ----------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)................... none none none Maximum deferred sales charge (load) (as a percentage of purchase price)*.................. none none none Maximum sales charge (load) imposed on reinvested dividends..... none none none Redemption fee**......... none none none Exchange fee............. none none none
*No contingent deferred sales charge ("CDSC") applies to your purchase of Fund shares. If, however, you exchange shares of another Ivy fund that are subject to a CDSC for shares of the Fund, the CDSC may carry over to your investment in the Fund and be assessed when you redeem your Fund shares (depending on how much time has elapsed since your original purchase date). **If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- CLASS A CLASS B CLASS C - ---------------------------------------------------- Management fees...... 0.40% 0.40% 0.40% Distribution and/or service (12b-1) fees................. none none none Other expenses....... 1.02% 0.91% 0.96% Total annual Fund operating expenses... 1.42% 1.31% 1.36% Expenses reimbursed*.......... 0.55% 0.55% 0.55% Net Fund operating expenses*............ 0.87% 0.76% 0.81%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses do not exceed 0.85% of the Fund's average net assets, when calculated at the Fund level,. For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 1.25% of the Fund's average net assets. - -------------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ---------------------------------- YEAR CLASS A CLASS B CLASS C - ---------------------------------- 1st $ 659 $ 78 $ 83 3rd 917 329 344 5th 1,196 600 626 10th 1,988 1,404 1,431
7 151 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS - -- PRINCIPAL STRATEGIES IVY BOND FUND: The Fund seeks to achieve its investment objective of a high level of current income by investing primarily in investment grade corporate bonds (which are rated Baa or higher by Moody's or BBB or higher by S&P) and U.S. Government securities that mature in more than 13 months. The Fund may invest up to 35% of its net assets in low-rated debt securities (commonly referred to as "high yield" or "junk" bonds). As much as 20% of the Fund's portfolio may be invested in foreign securities. The Fund's manager targets for investment issuers with stable or improving credit profiles. Individual securities are selected on the basis of factors such as comparative yields and credit quality, and where appropriate, country-specific currency and interest rate trends. IVY INTERNATIONAL STRATEGIC BOND FUND: The Fund seeks to achieve its primary investment objective of total return, and secondarily current income, by investing in the debt securities of issuers in any nation. The Fund's portfolio is actively managed to limit its exposure to individual country, sector, interest rate and currency risks. The Fund may, however, invest more than 5% of a portion of its assets in a single issuer (see "Non-diversification risk" on page 4). Individual securities are selected based on factors such as yields, credit quality, and the fundamental outlook for country-specific currency and interest rate trends. IVY MONEY MARKET FUND: The Fund seeks to achieve its investment objective of as high a level of current income as is consistent with the preservation of capital and liquidity by investing in high-quality, short-term securities. The Fund's 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. By purchasing these types of securities, the Fund will attempt to maintain a constant net asset value of $1.00 per share (although there is no guarantee that the Fund's efforts will be successful). The Fund's portfolio is actively monitored on a daily basis to maintain competitive yields. ALL FUNDS: Each Fund may from time to time take a temporary defensive position and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short-term notes and other money market securities. When a Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk (see "Risk Characteristics" below). - -- PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of a Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. Each Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in a Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: The following table identifies the investment techniques that each Fund's manager considers important in achieving the Fund's investment objective or in managing its exposure to risk (and that could therefore have a significant effect on a Fund's returns). Following the table is a description of the general risk characteristics of these investment techniques. Other investment methods that the Funds may use (such as derivative investments), but that are not likely to play a key role in their overall investment strategies, are described in the Funds' Statement of Additional Information (see back cover page for information on how you can receive a free copy). 8 152 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- --------------------------------------------------------------- IVY INTERNATIONAL IVY MONEY INVESTMENT IVY BOND STRATEGIC MARKET TECHNIQUE FUND BOND FUND FUND - --------------------------------------------------------------- Debt securities...... X X X Low-rated debt securities........... X X Sovereign debt....... X Zero coupon bonds.... X Foreign securities... X X Emerging markets..... X X Foreign currencies... X X Derivatives.......... X Illiquid securities......... X X Borrowing............ X X X Temporary defensive positions............ X X
RISK CHARACTERISTICS: - - DEBT SECURITIES, IN GENERAL: Investing in debt securities involves both interest rate and credit risk. The value of debt instruments generally increase as interest rates decline. Conversely, rising interest rates tend to cause the value of debt securities to decrease. The Fund's portfolio is therefore susceptible to losses in a rising interest rate environment. The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Bonds with longer maturities also tend to be more volatile than bonds with shorter maturities. - - LOW-RATED DEBT SECURITIES: In general, low-rated debt securities (commonly referred to as "high yield" or "junk" bonds) offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. For this reason, these bonds are considered speculative and could significantly weaken the Funds' returns. - - SOVEREIGN DEBT SECURITIES: Sovereign debt is issued by foreign governments. For a variety of reasons (such as cash flow problems, limited foreign reserves, and political constraints), the governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal or interest when due. A governmental entity's ability to honor its debt obligations to the investing Fund may also be contingent on its receipt from others (such as the International Monetary Fund and more solvent foreign governments) of specific disbursements, which may in turn be conditioned on the perceived health of the governmental entity's economy and/or its implementation of economic reforms. If any of these conditions fail, the Fund could lose the entire value of its investment for an indefinite period of time. - - ZERO COUPON BONDS: Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest (and are issued at a significant discount from face value). Because the income from zero coupon bonds is recognized currently for Federal income tax purposes, the amount of the unpaid, accrued interest a fund generally would be required to distribute as dividends includes that income (even though the fund has not actually received any income proceeds). The fund could be forced to sell other portfolio securities at a disadvantageous time and/or price in order to meet its distribution obligations. - - FOREIGN SECURITIES: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect a Fund's performance favorably or unfavorably, depending upon prevailing conditions at any given time. For example, the securities markets of many foreign countries may be smaller, less liquid and subject to greater price volatility than those in the U.S. Foreign investing may also involve brokerage costs and tax considerations that are not usually present in the U.S. markets. Other factors that can affect the value of a Fund's foreign investments include the comparatively weak supervision and regulation by some foreign governments of securities exchanges, brokers and issuers, and the fact that many foreign companies may not be subject to uniform accounting, auditing and financial reporting standards. It may also be difficult to obtain reliable information about the securities and business operations of certain foreign issuers. Settlement of portfolio transactions may also be delayed due to local restrictions or communication problems, which can cause a Fund to miss attractive investment opportunities or impair its ability to dispose of securities in a timely fashion (resulting 9 153 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- in a loss if the value of the securities subsequently declines). - - FOREIGN CURRENCIES: Foreign securities may be denominated in foreign currencies, and the value of a Fund's investments, as measured in U.S. dollars, may be harmed by changes in foreign currency exchange rates and exchange control regulations. Currency conversions can also be costly. - - SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities are heightened in countries with new or developing economies. Among these additional risks are the following: - securities that are even less liquid and more volatile than those in more developed foreign countries; - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - increased settlement delays; - unusually high inflation rates (which in extreme cases can cause the value of a country's assets to erode sharply); - unusually large currency fluctuations and currency conversion costs; and - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - - DERIVATIVE INVESTMENT TECHNIQUES: Ivy International Strategic Bond Fund may, but is not required to, use certain derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates and broad or specific market movements) or to enhance potential gain. Among the derivative techniques the Fund might use are options, futures, forward foreign currency contracts and foreign currency exchange transactions. Using put and call options could cause the Fund to lose money by forcing the sale or purchase of portfolio securities at inopportune times or for prices higher (in the case of put options) or lower (in the case of call options) than current market values, by limiting the amount of appreciation the Fund can realize on its investments, or by causing the Fund to hold a security it might otherwise sell. Futures transactions (and related options) involve other types of risks. For example, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of the Fund could cause losses on the hedging instrument that are greater than gains in the value of the Fund's position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, the Fund might not be able to close out a transaction before expiration without incurring substantial losses (and it is possible that the transaction cannot even be closed). In addition, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Foreign currency transactions (such as forward foreign currency contracts) can cause investment losses in a variety of ways. For example, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. There may also be an imperfect correlation between the Fund's portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. - - ILLIQUID SECURITIES: "Illiquid securities" are assets that may not be disposed of in the ordinary course of business within seven days at roughly the value at which the investing fund has valued the assets. These may be "restricted securities," which cannot be sold to the public without registration under the Securities Act of 1933 (in the absence of an exemption) or because of other legal or contractual restrictions on resale. Thus, while illiquid securities may offer the potential for higher returns than more readily marketable securities, there is a risk that the investing fund will not be able to dispose of them promptly at an acceptable price. 10 154 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - - BORROWING: For temporary or emergency purposes, each Fund may borrow up to a specific percentage of its total assets from qualified banks (10% in the case of Ivy Bond Fund and Ivy Money Market Fund, and 20% in the case of Ivy International Strategic Bond Fund). Borrowing may exaggerate the effect on a Fund's share value or any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. - -- OTHER IMPORTANT INFORMATION EUROPEAN MONETARY UNION: Ivy Bond Fund and Ivy International Strategic Bond Fund may have investments in Europe. On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, the Funds could experience investment losses. 11 155 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- MANAGEMENT - -- INVESTMENT ADVISOR Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 IMI provides investment advisory and business management services to the Funds. IMI is an SEC-registered investment advisor with over $5 billion in assets under management, and provides similar services to the other sixteen series of Ivy Fund. For the Funds' fiscal year ending December 31, 1999, the Funds paid IMI a fee that was equal to the following percentages of the Funds' respective average net assets: - - Ivy Bond Fund, 0.69%; - - Ivy Money Market Fund, 0.40%. Ivy International Strategic Bond Fund pays IMI a fee at the rate of 0.75% of the Fund's average net assets. - -- PORTFOLIO MANAGEMENT IVY BOND FUND AND IVY MONEY MARKET FUND: The Funds are managed by IMI's Fixed Income Team. Among the research sources and techniques that team members use during the investment decision-making process are: - - issuer financial statements; - - discussions with company managers and Wall Street analysts; - - credit rating agency opinions; and - - various financial publications. IVY INTERNATIONAL STRATEGIC BOND FUND: Richard A. Gluck, Vice President of IMI, is the Fund's portfolio manager. Before joining IMI, Mr. Gluck was a Vice President and portfolio manager at Oppenheimer Capital. He has been managing global fixed income funds since 1989. Mr. Gluck holds a Masters Degree in management with a concentration in finance from the M.I.T. Sloan School of Management. Mr. Gluck is supported by the members of IMI's Fixed Income Team, which is responsible for providing information on regional and country-specific economic and political developments and monitoring individual companies. Team members use a variety of research sources that include: - - brokerage reports; - - economic and financial news services; - - company reports; and - - information from third party research firms (ranging from large investment banks with global coverage to local research houses). In many cases, particularly in emerging market countries, IMI's research analysts also conduct primary research by: - - meeting with company management; - - touring facilities; and - - speaking with local research professionals. 12 156 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHAREHOLDER INFORMATION - -- PRICING OF FUND SHARES Each Fund calculates its share price by dividing the value of the Fund's net assets by the total number of its shares outstanding as of the close of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the Exchange is open for trading (normally any weekday that is not a national holiday). Each portfolio security that is listed or traded on a recognized stock exchange is valued at the security's last quoted sale price on the exchange on which it is principally traded. If no sale is reported at that time, the average between the last bid and asked prices is used. Securities and other Fund assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Funds' Board of Trustees. IMI may also price a foreign security at its fair value if events materially affecting the estimated value of the security occur between the close of the foreign exchange on which the security is principally traded and the time as of which a Fund prices its shares. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of a Fund in an attempt to profit from short-term market movements. When such fair-value pricing occurs, however, there may be some period of time during which a Fund's share price and/or performance information is not available. Each purchase and redemption order is subject to any applicable sales charge (see "Choosing the appropriate class of shares" at right). Ivy International Strategic Bond Fund normally invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares. Therefore, the Funds' share value may change on days when shareholders will not be able to purchase or redeem shares. IVY MONEY MARKET FUND: The Fund values all of its portfolio securities using the "amortized cost method," which involves valuing each security at its initial cost to the Fund and then assuming a constant rate of accretion of discount or amortization of premium. Cash and receivables are valued at their realizable amounts. ALL FUNDS: The number of shares you receive when you place a purchase or exchange order, and the payment you receive after submitting a redemption request, is based on a Fund's net asset value ("NAV") next determined after your instructions are received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent) or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge (see "Choosing the appropriate class of shares" below). - -- HOW TO BUY SHARES Please read these sections carefully before investing. CHOOSING THE APPROPRIATE CLASS OF SHARES: The essential features of the Funds' different classes of shares are described below. If you do not specify on your Account Application which class of shares you are purchasing, it will be assumed that you are purchasing Class A shares. IVY BOND FUND AND IVY INTERNATIONAL STRATEGIC BOND FUND: The Fund's have each adopted separate distribution plans pursuant to Rule 12b-1 under the 1940 Act for their Class A, B and C shares that allow the Funds to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Because these fees are paid out of the Funds' assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. - - CLASS A SHARES: Class A shares of Ivy Bond Fund and Ivy International Strategic Bond Fund are sold at net asset value plus a maximum sales charge of 4.75% (the "offering price"). The sales charge may be reduced or eliminated if certain conditions are met (see "Additional 13 157 (IVY LEAF) - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- purchase information"). Class A shares are subject to a 0.25% Rule 12b-1 service fee. - - CLASS B SHARES: Class B shares of Ivy Bond Fund and Ivy International Strategic Bond Fund are offered at net asset value, without an initial sales charge, but subject to a contingent deferred sales charge ("CDSC") that declines from 5.00% to zero on certain redemptions within six years of purchase. Class B shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee, and convert automatically into Class A shares eight years after purchase. - - CLASS C SHARES: Class C shares are offered at net asset value, without an initial sales charge, but subject to a CDSC of 1.00% for redemptions within the first year of purchase. Class C shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee. - - CLASS I SHARES: Class I shares are offered to certain classes of investors at net asset value, without any sales load or Rule 12b-1 fees. The following table displays the various investment minimums, sales charges and expenses that apply to each class of Ivy Bond Fund and Ivy International Strategic Bond Fund:
- ------------------------------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------------------------------ Minimum initial investment*.......... $1,000 $1,000 $1,000 $5,000,000 Minimum subsequent investment*.......... $100 $100 $100 $10,000 Initial sales charge............... Maximum 4.75%, None None None with options for a reduction or waiver CDSC................. None, except on Maximum 5.00%, 1.00% for the None certain NAV declines over first year purchases six years Service and distribution fees.... 0.25% service 0.75% 0.75% None fee distribution distribution fee and 0.25% fee and 0.25% service fee service fee
*Minimum initial and subsequent investments for retirement plans are $25. IVY MONEY MARKET FUND: The following table displays the various investment minimums, sales charges and expenses that apply to each class of Ivy Money Market Fund:
- ------------------------------------------------------------------------------ CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------ Minimum initial investment*................ $1,000 $1,000 $1,000 Minimum subsequent investment*................ $100 $100 $100 Initial sales charge....... None None None CDSC....................... None None, except on None, except on shares purchased shares purchased with proceeds from with proceeds from the exchange of the exchange of other Ivy Fund other Ivy fund shares that would shares that would otherwise have been otherwise have been subject to a CDSC subject to a CDSC (maximum 5.00%, (maximum 1.00% for declines over six the first year) years) Service and distribution fees....................... None None None
*Minimum initial and subsequent investments for retirement plans are $25. - -- ADDITIONAL PURCHASE INFORMATION FOR IVY BOND FUND AND IVY INTERNATIONAL STRATEGIC BOND FUND CLASS A SHARES: Class A shares are sold at a public offering price equal to their net asset value per share plus an initial sales charge, as set forth below (which is reduced as the amount invested increases):
- --------------------------------------------------------------- SALES SALES PORTION OF CHARGE AS A CHARGE AS A PUBLIC PERCENTAGE PERCENTAGE OFFERING OF PUBLIC OF NET PRICE OFFERING AMOUNT RETAINED BY AMOUNT INVESTED PRICE INVESTED DEALER - --------------------------------------------------------------- Less than $100,000.... 4.75% 4.99% 4.00% $100,000 but less than $250,000.............. 3.75% 3.90% 3.00% $250,000 but less than $500,000.............. 2.50% 2.56% 2.00% $500,000 or over*..... 0.00% 0.00% 0.00%
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years of the end of the month in which they were purchased. Class A shares that are acquired through reinvestment of dividends or distributions are not subject to any sales charges. HOW TO REDUCE YOUR INITIAL SALES CHARGE: - - "Rights of Accumulation" permits you to pay the sales charge that applies to the cost or value (whichever is higher) of all Ivy Fund Class A shares you own. 14 158 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - - A "Letter of Intent" permits you to pay the sales charge that would apply to your cumulative purchase of Fund shares over a 13-month period (certain restrictions apply). HOW TO ELIMINATE YOUR INITIAL SALES CHARGE: You may purchase Class A shares at NAV (without an initial sales charge or a CDSC) through any one of the following methods: - - through certain investment advisors and financial planners who charge a management, consulting or other fee for their services; - - under certain qualified retirement plans; - - as an employee or director of Mackenzie Investment Management Inc. or its affiliates; - - as an employee of a selected dealer; or - - through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Funds are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in assets or fewer than 500 eligible employees. For further information see "Group Systematic Investment Program" in the SAI. Certain trust companies, bank trust departments, credit unions, savings and loans and other similar organizations may also be exempt from the initial sales charge on Class A shares. You may also purchase Class A shares at NAV if you are investing at least $500,000 through a dealer or agent. Ivy Mackenzie Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the dealer or agent (out of IMDI's own resources) for its distribution assistance according to the following schedule:
- -------------------------------------------------- PURCHASE AMOUNT COMMISSION - -------------------------------------------------- First $3,000,000...................... 1.00% Next $2,000,000....................... 0.50% Over $5,000,000....................... 0.25%
IMDI may from time to time pay a bonus or other cash incentive to dealers (other than IMDI), including those that employ a registered representative who during a specified time period sells a minimum dollar amount of the shares of a Fund and/or other funds distributed by IMDI. Each Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of certain dealers meeting criteria established by IMDI. This privilege will apply only to Class A shares of a Fund that are purchased using proceeds obtained by such clients through redemption of another mutual fund's shares on which a sales charge was paid. Purchases must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year of purchase. CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to an initial sales charge but are subject to a CDSC. If you redeem your Class C shares within one year of purchase they will be subject to a CDSC of 1.00%, and Class B shares redeemed within six years of purchase will be subject to a CDSC at the following rates:
- ---------------------------------------------------- CDSC AS A PERCENTAGE OF YEAR SINCE DOLLAR AMOUNT PURCHASE SUBJECT TO CHARGE - ---------------------------------------------------- First...................... 5.00% Second..................... 4.00% Third...................... 3.00% Fourth..................... 3.00% Fifth...................... 2.00% Sixth...................... 1.00% Seventh and thereafter..... 0.00%
The CDSC for both Class B and Class C shares will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. No charge will be assessed on increases in account value above the original purchase price or on reinvested dividends and distributions. Shares will be redeemed on a lot-by-lot basis in the following order: - - Shares held more than six years; - - Shares acquired through reinvestment of dividends and distributions; - - Shares subject to the lowest CDSC percentage, on a first-in, first-out basis (1) with the portion of the lot attributable to capital appreciation which is not subject to a CDSC; redeemed first, then (2) the portion of the lot attributable to your original basis, which is subject to a CDSC. 15 159 (IVY LEAF) - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- The CDSC for Class B shares is waived for: - - Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 1/2 years old. - - Redemptions by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers. - - Redemptions resulting from a tax-free return of excess contribution to an IRA. - - Withdrawals resulting from shareholder death or disability provided that the redemption is requested within one year of death or disability. - - Withdrawals through the Systematic Withdrawal Plan of up to 12% per year of your account value at the time the plan is established. Both Class B shares and Class C shares are subject to an ongoing service and distribution fee at a combined annual rate of up to 1.00% of the portfolio's average net assets attributable to its Class B or Class C shares. The ongoing distribution fees will cause these shares to have a higher expense ratio than that of Class A and Class I shares. IMDI uses the money that it receives from the deferred sales charge and the distribution fees to cover various promotional and sales related expenses, as well as expenses related to providing distributions services, such as compensating selected dealers and agents for selling these shares. Approximately eight years after the original date of purchase, your Class B shares will be converted automatically to Class A shares. Class A shares are subject to lower annual expenses than Class B shares. The conversion from Class B shares to Class A shares is not considered a taxable event for Federal income tax purposes. Class C shares do not have a similar conversion privilege. CLASS I SHARES: Class I shares are offered only to institutions and certain individuals, and are not subject to an initial sales charge or a CDSC, nor to ongoing service or distribution fees. Class I shares also bear lower fees than Class A, Class B and Class C shares. - -- SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the end of this Prospectus. Enclose a check payable to the Fund in which you wish to invest. You should note on the check the class of shares you wish to purchase (see page 14 for minimum initial investments.) Deliver your application materials to your registered representative or selling broker, or send them to one of the addresses below: - - BY REGULAR MAIL: Ivy Mackenzie Services Corp. PO Box 3022 Boca Raton, FL 33431-0922 - - BY COURIER: Ivy Mackenzie Services Corp. 700 South Federal Hwy. Boca Raton, FL 33432-6114 - -- BUYING ADDITIONAL SHARES There are several ways to increase your investment in a Fund: - - BY MAIL: Send your check with a completed investment slip (attached to your account statement) or written instructions indicating the account registration, Fund number or name, and account number. Mail to one of the addresses above. - - THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. - - BY WIRE: Purchases may also be made by wiring money from your bank account to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call IMSC at 800.777.6472. Wiring instructions are as follows: First Union National Bank of Florida Jacksonville, FL ABA #063000021 Account #2090002063833 For further credit to: Your Account Registration Your Fund Number and Account Number - - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Ivy Fund account. Complete sections 6A and 7B of the Account Application. 16 160 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- HOW TO REDEEM SHARES SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your registered securities dealer or directly through IMSC. If you choose to redeem through your registered securities dealer, the dealer is responsible for properly transmitting redemption orders in a timely manner. If you choose to redeem directly through IMSC, you have several ways to submit your request: - - BY MAIL: Send your written redemption request to IMSC at one of the addresses on page 16 of this Prospectus. Be sure that all registered owners listed on the account sign the request. Medallion signature guarantees and supporting legal documentation may be required. When you redeem, IMSC will normally send redemption proceeds to you on the next business day, but may take up to seven days (or longer in the case of shares recently purchased by check). - - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or custodial account. To process your redemption order by telephone, you must have telephone redemption privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. - - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds electronically drawn each month from your Ivy Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: - - BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. - - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. - - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. IMPORTANT REDEMPTION INFORMATION: - - A CDSC may apply to certain Class A share redemptions, to Class B shares redeemed within six years of purchase, and to Class C shares that are redeemed within one year of purchase. - - If you own shares of more than one class of the Fund, the Fund will redeem first the shares having the highest 12b-1 fees, unless you instruct otherwise. - - Any shares subject to a CDSC will be redeemed last unless you specifically elect otherwise. - - Shares will be redeemed in the order described under "Additional Purchase Information--Class B and Class C Shares", above. - - A Fund may (on 60 days' notice) redeem the accounts of shareholders whose investment, including sales charges paid, has been less than $1,000 for more than 12 months. - - A Fund may take up to seven days (or longer in the case of shares recently purchased by check) to send redemption proceeds. 17 161 (IVY LEAF) - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- - -- HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of another Ivy fund, subject to certain restrictions (see "Important exchange information" at right). IVY MONEY MARKET FUND: Class A shareholders of Ivy Money Market Fund may exchange their outstanding shares for Class A shares of another Ivy Fund on the basis of the relative NAV per Class A share, plus an amount equal to the sales charge payable with respect to the new shares at the time of the exchange. Incremental sales charges are waived for outstanding shares that have been invested for 12 months or longer. Class B (or Class C) shareholders of Ivy Money Market Fund may exchange their Class B (or Class C) shares for Class B (or Class C) shares of another Ivy fund on the basis of the relative NAV per Class B (or Class C) share, subject to the CDSC schedule of the fund into which the exchange is being made (beginning with the date of the exchange). Class B and Class C shareholders of another Ivy fund may exchange their shares for Class B and Class C shares of the Fund. Exchanges from another Ivy Fund will continue to be subject to the CDSC schedule of the fund from which the exchange was made, but will reflect the time the shares are held in the Ivy Money Market Fund. ALL FUNDS: SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as follows: - - BY MAIL: Send your written exchange request to IMSC at one of the addresses on page 16 of this Prospectus. Be sure that all registered owners listed on the account sign the request. - - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. IMPORTANT EXCHANGE INFORMATION: - - You must exchange into the same share class you currently own. - -- Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - - It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee (in the case of certain funds), or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. - -- DIVIDENDS, DISTRIBUTIONS AND TAXES - - The Funds generally declare and pay dividends and capital gain distributions (if any) at least once a year. - - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - - Reinvested dividends and distributions are added to your account at NAV and are not subject to a sales charge regardless of which share class you own. - - Cash dividends and distributions can be sent to you: - - BY MAIL: a check will mailed to the address of record unless otherwise instructed. - - BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into your bank account. To change your dividend and/or distribution options, call IMSC at 800.777.6472. 18 162 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dividends ordinarily will vary from one class to another. Ivy Bond Fund and Ivy International Strategic Bond Fund intend to declare and pay dividends monthly. Ivy Money Market Fund intends to declare dividends daily and pay accrued amounts monthly. The Funds will distribute net realized capital gains, if any, at least once a year. The Funds may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of a Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of a Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, are taxable to you as long-term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Funds' managers may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, they do not generally manage the Funds to optimize tax efficiencies. If shares of a Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by a Fund in October, November or December with a record date in such a month and paid by a Fund during January of the following calendar year. In certain years, you may be able to claim a credit or deduction on your income tax return for your share of foreign taxes paid by your Fund. Upon the sale or exchange of your Fund shares, you may realize a capital gain or loss which will be long term or short term, generally depending upon how long you held your shares. A Fund may be required to withhold U.S. Federal income tax at the rate of 31% of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Funds, including the status of distributions from a Fund under applicable state or local law. 19 163 [IVY LEAF LOGO] FINANCIAL HIGHLIGHTS The financial highlights tables are intended to help you understand the Funds' financial performance for the past five years (or less if a Fund has a shorter operating history) and reflects results for a single Fund share. The total returns in the table represent the rate an investor would have earned (or lost) each year on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been audited by , whose report, along with each Fund's financial statements, is included in the Fund's Annual Report to shareholders (which is available upon request).
- ------------------------------------------------------------------------------------------------------------ CLASS A IVY BOND FUND -------------------------------------------------------------- for the year ended December 31, - ------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA -------------------------------------------------------------- Net asset value, beginning of period....... $ $ 10.22 $ 9.80 $ 9.78 $ 9.01 -------------------------------------------------------------- Income from investment operations Net investment income.................... .69 .80 .72 .67(a) Net gains or losses on securities (both realized and unrealized)............... (.69) .42 .03 .84 -------------------------------------------------------------- Total from investment operations......... -- 1.22 .75 1.51 -------------------------------------------------------------- Less distributions Dividends From net investment income............. .68 .80 .72 .63 In excess of net investment income..... -- -- .01 -- Distributions From capital gains..................... -- -- -- -- In excess of capital gains............. -- -- -- -- Returns of capital....................... -- -- -- .11 -------------------------------------------------------------- Total distributions.................... .68 .80 .73 .74 -------------------------------------------------------------- Net asset value, end of period............. $ $ 9.54 $ 10.22 $ 9.80 $ 9.78 -------------------------------------------------------------- -------------------------------------------------------------- Total return (%)........................... .00(b) 11.87(b) 8.06(b) 17.41(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)... $ $ 109,445 $106,497 $97,881 $108,840 Ratio of expenses to average net assets With expense reimbursement (%)........... -- -- -- 1.54 Without expense reimbursement (%)........ 1.39 1.47 1.56 1.54 Ratio of net investment income to average net assets (%)........................... 6.88 7.08 7.36 7.09(a) Portfolio turnover rate (%)................ 43 71 90 93
20 164
- ---------------------------------------------------------------------------------------------------------------------------- CLASS B CLASS C - ---------------------------------------------------------------------------------------------------------------------------- for the period April 30, 1996 for the year ended for the year ended (Commencement) December 31, December 31, to December 31, - ----------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------- $ $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ $ 10.24 $ 9.82 $9.44 - ----------------------------------------------------------------------------------------------------------------- .59 .68 .64 .60(a) .60 .64 .39 (.67) .46 .04 .84 (.68) .48 .43 - ----------------------------------------------------------------------------------------------------------------- (.08) 1.14 .68 1.44 (.08) 1.12 .82 - ----------------------------------------------------------------------------------------------------------------- .59 .72 .64 .56 .60 .70 .39 .02 -- .02 -- .01 -- .05 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- .11 -- -- -- - ----------------------------------------------------------------------------------------------------------------- .61 .72 .66 .67 .61 .70 .44 - ----------------------------------------------------------------------------------------------------------------- $ $ 9.53 $ 10.22 $ 9.80 $ 9.78 $ $ 9.55 $10.24 $9.82 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- (.81)(b) 11.12(b) 7.25(b) 16.54(b) (.81)(b) 11.11(b) 8.81(c) $ $42,166 $18,499 $5,300 $5,184 $ $11,266 $6,580 $ 618 -- -- -- 2.29 -- -- -- 2.13 2.21 2.29 2.29 2.12 2.20 2.35(d) 6.14 6.35 6.62 6.34(a) 6.15 6.35 6.56(d) 43 71 90 93 43 71 90 (a) Net investment income is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return and does not reflect a sales charge. (d) Annualized
[IVY LEAF LOGO]
==================================================================================================================================== IVY INTERNATIONAL STRATEGIC BOND CLASS A CLASS B CLASS C CLASS I ------------------------------------------------------------------------- For the period For the period For the period For the period May 3, 1999 May 3, 1999 May 3, 1999 May 3, 1999 (Commencement) (Commencement) (Commencement) (Commencement) to December 31, to December 31, to December 31, to December 31, - ------------------------------------------------------------------------------------------------------------------------------------ SELECTED PER SHARE DATA 1999 1999 1999 1999 ------------------------------------------------------------------------- Net asset value, beginning of period..................... $ $ $ $ ------------------------------------------------------------------------- Income (loss) from investment operations Net investment loss (a)(b)............................. Net gains or losses on securities (both realized and unrealized)(a)....................................... ------------------------------------------------------------------------- Total from investment operations....................... ------------------------------------------------------------------------- Net asset value, end of period........................... $ $ $ $ ========================================================================= Total return (%)(c)...................................... RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................. $ $ $ $ Ratio of expenses to average net assets (%) With expense reimbursement (%)(d)...................... Without expense reimbursement (%)(d)................... Ratio of net investment income (loss) to average net assets (%)(a)(b)(d)................................ Portfolio turnover rate (%)..............................
21 165 [IVY LEAF LOGO]
- --------------------------------------------------------------------------------------------------------------------------- CLASS A IVY MONEY MARKET FUND -------------------------------------------------------------- for the year ended December 31, - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA -------------------------------------------------------------- Net asset value, beginning of period...................... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------------------------------------------------------------- Income from investment operations Net investment income (a)............................... .05 .05 .04 .05 Less distributions Dividends (from net investment income).................. (.05) (.05) (.04) (.05) -------------------------------------------------------------- Net asset value, end of period............................ $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------------------------------------------------------------- -------------------------------------------------------------- Total return (%).......................................... 4.51 4.60 4.47 4.80 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................. $ $19,103 $15,385 $21,359 $24,609 Ratio of expenses to average net assets With expense reimbursement (%).......................... .87 .88 .86 .85 Without expense reimbursement (%)....................... 1.42 1.57 1.86 1.39 Ratio of net investment income to average net assets (%)(a).................................................. 4.50 4.60 4.47 4.91
22 166
- ------------------------------------------------------------------------------------------------------------- (a) Net investment income is net of expenses reimbursed by manager. (b) Total return repre- sents aggregate total return. (c) Annualized CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------ from April 30, 1996 for the year ended for the year ended (Commencement) December 31, December 31, to December 31, - ------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1999 1998 1997 1996 - -------------- ------------------------------------------------------------------------------------------- $ $ 1.00 $ 1.00 $ 1.00 $ $1.00 $1.00 $1.00 - -------------- ------------------------------------------------------------------------------------------- .05 .05 .05 .05 .05 .03 (.05) (.05) (.05) (.05) (.05) (.03) - -------------- ------------------------------------------------------------------------------------------- $ $ 1.00 $ 1.00 $ 1.00 $ $1.00 $1.00 $1.00 - -------------- ------------------------------------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------- 4.59 4.77 4.57 4.55 4.78 4.78(b) $ $6,636 $3,812 $3,474 $ $ 423 $ 405 $ 74 .76 .70 .77 .81 .70 .56(c) 1.31 1.39 1.77 1.36 1.39 1.56(c) 4.61 4.77 4.57 4.56 4.78 4.78(c)
23 167 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 24 168 Account Application FUND USE ONLY __________________________ Account Number __________________________ Dealer/Branch/Rep __________________________ Account Type/Soc Cd [IVY FUNDS LOGO] Please mail applications and checks to: Ivy Mackenzie Services Corp., P.O. Box 3022, Boca Raton, Florida 33431-0922 This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. 1 REGISTRATION Name ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Address ________________________________________________________________ City ___________________________________ State _____________ Zip _______ Phone # (day) (____)_____________ Phone # (evening) (___)_______________ ___ Individual ___ UGMA/UTMA ___ Sole proprietor ___ Joint tenant ___ Corporation ___ Trust ___ Estate ___ Partnership ___ Other Date of trust _____________________ Minor's state of residence _________ 2 TAX I.D. Citizenship: ___ U.S. ___ Other (please specify):___________________ Social security # _______-____-_______ or Tax identification #________ Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) Please see the "Dividends, distributions and taxes" section of the Prospectus for additional information on completing this section. 3 DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify IMSC of any purchases made under a Letter of Intent or Rights of Accumulation. Dealer name_____________________________________________________________ Branch office address __________________________________________________ City _____________________________________ State _______ Zip __________ Representative's name __________________________________________________ Representative's # _________________ Representative's phone # __________ Authorized signature of dealer _________________________________________ 4 INVESTMENTS A. Enclosed is my check ($1,000 minimum) for $_____________ made payable to the appropriate fund. Please invest it in: __________________________________ Class A __________________________________ Class B __________________________________ Class C __________________________________ Class I ("*" Funds only) of the following fund(s): $ _____________ Ivy Bond Fund* $ ------------- Ivy Money Market Fund $ _____________ Ivy International Strategic Bond Fund*
B. I qualify for a reduction or elimination of the sales charge due to the following privilege (applies only to Class A shares): ___ New Letter of Intent (if ROA or 90-day backdate privilege is applicable, provide account(s) information below.) ___ ROA with the account(s) listed below. ___ Existing Letter of Intent with the account(s) listed below. Fund name: ___________________________________ Fund name: _________________________________ Account #: ___________________________________ Account #: _________________________________
If establishing a Letter of Intent, you will need to purchase Class A shares over a 13-month period in accordance with the provisions in the Prospectus. The aggregate amount of these purchases will be at least equal to the amount indicated below (see Prospectus for minimum amount required for reduced sales charges). ____ $100,000 ____ $250,000 ____ $500,000 C. FOR DEALER USE ONLY Confirmed trade orders: __________________ ___________________ _____________________ Confirm Number Number of Shares Trade Date
169 5 DISTRIBUTION OPTIONS I would like to reinvest dividends and capital gains into additional shares in this account at net asset value unless a different option is checked below. A. ___ Reinvest all dividends and capital gains into additional shares of the same class of a different Ivy fund account. Fund name: ________________________________________________________ Account #: ________________________________________________________ B. ___ Pay all dividends in cash and reinvest capital gains into additional shares of the same class in this account or a different Ivy fund account. Fund name: ________________________________________________________ Account #: ________________________________________________________ C. ___ Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT TO: ___ the address listed in the registration ___ the special payee listed in Section 7A (by mail) ___ the special payee listed in Section 7B (by EFT) 6 OPTIONAL SPECIAL FEATURES A. AUTOMATIC INVESTMENT METHOD (AIM) ___ I wish to have my bank account listed in section 7B automatically debited via EFT on a predetermined frequency and invested into my Ivy Fund account listed below. 1. Withdraw $ _______ for each time period indicated below and invest my bank proceeds into the following Ivy fund: Fund name: ________________________________________________________ Share class: __ Class A __ Class B __ Class C Account #: ________________________________________________________ 2. Debit my bank account: ___ Annually (on the ___ day of the month of _____________________). ___ Semiannually (on the ___ day of the months of _____ and _____). ___ Quarterly (on the ___ day of the first/second/third month of each calendar quarter). (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the ___ days ___ 3 times per month on the ___ days ___ 4 times per month on the ___ days B. SYSTEMATIC WITHDRAWAL PLANS (SWP)** ___ I wish to have my Ivy Fund account automatically debited on a predetermined frequency and the proceeds sent to me per my instructions below. 1. Withdraw ($50 minimum) $___ for each time period indicated below from the following Ivy Fund account: Fund name: ________________________________________________________ Share class: __ Class A __ Class B __ Class C Account #: ________________________________________________________ 2. Withdraw from my Ivy Fund account: ___ Annually (on the ___ day of the month of _________-). ___ Semiannually (on the ___ day of the months of ___ and ___). ___ Quarterly (on the ___ day of the first/second/third month of each calendar quarter. (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the ___ days ___ 3 times per month on the ___ days ___ 4 times per month on the ___ days 3. I request the withdrawal proceeds be: ___ sent to the address listed in the registration ___ sent to the special payee listed in section 7A or 7B. ___ invested into additional shares of the same class of a different Ivy fund: Fund name: ________________________________________________________ Account #: ________________________________________________________ Note: A minimum balance of $5,000 is required to establish a SWP. 6. OPTIONAL SPECIAL FEATURES (CONT.) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** ___ yes ___ no By checking "yes" immediately above, I authorize IMSC to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may be wire transferred to the bank account designated ($1,000 minimum). (COMPLETE SECTION 7B). D. TELEPHONE EXCHANGES** ___ yes ___ no By checking "yes" immediately above, I authorize exchanges by telephone among the Ivy funds upon instructions from any person as more fully described in the Prospectus. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone exchange privilege will be provided automatically. E. TELEPHONIC REDEMPTIONS** ___ yes ___ no By checking "yes" immediately above, the Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds are to be payable to the shareholder of record and mailed to the address of record. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone redemption privilege will be provided automatically. * There must be a period of at least seven calendar days between each investment (AIM)/withdrawal (SWP) period. ** This option may not be used if shares are issued in certificate form. 7 SPECIAL PAYEE A. MAILING ADDRESS: Please send all disbursements to this payee: Name of bank or individual _______________________________________________ Account # (if applicable) ________________________________________________ Street ___________________________________________________________________ City __________________________________________ State ______ Zip _________ B. FED WIRE/EFT INFORMATION Financial institution ____________________________________________________ ABA # ____________________________________________________________________ Account # (if applicable) ________________________________________________ Street ___________________________________________________________________ City __________________________________________ State ______ Zip _________ (PLEASE ATTACH A VOIDED CHECK.) 8 SIGNATURES Investors should be aware that the failure to check the "No" under Section 6D or 6E above means that the Telephone Exchange/ Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Please see "How to exchange shares" and "How to redeem shares" in the Prospectus for more information on these privileges. I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this application by reference. I am certifying my taxpayer information as stated in Section 2. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. _______________________________________ ___________________________ Signature of Owner, Custodian, Trustee or Date Corporate Officer _______________________________________ ___________________________ Signature of Owner, Custodian, Trustee or Date Corporate Officer DETACH ON PERFORATION TO MAIL (Remember to sign Section 8) 170 * Symbol not assigned as of this printing - -------------------------------------------------------------------------------- -- QUOTRON SYMBOLS AND CUSIP NUMBERS
- ---------------------------------------------------------------------------------------- FUND SYMBOL CUSIP - ---------------------------------------------------------------------------------------- Ivy Bond Fund Class A MCFIX 465897791 Ivy Bond Fund Class B IVBBX 465897783 Ivy Bond Fund Class C IVBCX 465897668 Ivy Bond Fund Class I * 465897775 Ivy International Strategic Bond Fund Class A * 465898104 Ivy International Strategic Bond Fund Class B * 465898203 Ivy International Strategic Bond Fund Class C * 465898302 Ivy International Strategic Bond Fund Class I * 465898401 Ivy Money Market Fund Class A IVMXX 465897684 Ivy Money Market Fund Class B IVBXX 465897676 Ivy Money Market Fund Class C IVCXX 465897551 - ----------------------------------------------------------------------------------------
171 (Ivy Funds Logo) -- HOW TO RECEIVE MORE INFORMATION ABOUT THE FUNDS Additional information about the Funds and their investments is contained in the Funds' Statement of Additional Information dated ___________, 2000 (the "SAI"), which is incorporated by reference into this Prospectus, and the Funds' annual and semiannual reports to shareholders. Each Fund's annual report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its most recent fiscal year. The SAI and annual and semiannual reports are available upon request and without charge from the Distributor at the following address and phone number. Ivy Mackenzie Distributors, Inc. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432 800.456.5111 Information about the Funds (including the SAI and annual and semiannual reports) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (please call 1-202-942-8090 for further details). Reports and other information about the Funds are also available on the EDGAR Database on the SEC's Internet Website (www.sec.gov), and copies of this information may be obtained, upon payment of a copying fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009. -- SHAREHOLDER INQUIRIES Please call Ivy Mackenzie Services Corp., the Funds' transfer agent, regarding any other inquiries about the Funds at 800.777.6472. www.ivymackenzie.com E-mail: invest@ivymackenzie.com Investment Company Act File No. 811-1028 172 Ivy Funds Logo This is your prospectus from IVY MACKENZIE DISTRIBUTORS, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 800.456.5111 __________, 2000 FIXED INCOME FUNDS ADVISOR CLASS SHARES IVY BOND FUND IVY INTERNATIONAL STRATEGIC BOND FUND Ivy Fund is a registered open-end investment company consisting of twenty-one separate portfolios. This Prospectus relates to the Advisor Class shares of the two funds listed above (the "Funds"). The Funds also offer Class A, Class B, Class C and Class I shares, which are described in a separate prospectus. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. Investments in the Funds are not deposits of any bank and are not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. -- CONTENTS 2 Ivy Bond Fund 4 Ivy International Strategic Bond Fund 6 Additional information about investment strategies and risks 10 Management 11 Shareholder information 14 Financial highlights 17 Account application OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, Massachusetts CUSTODIAN AUDITORS Brown Brothers Harriman & Co. _______________________ Boston, Massachusetts Fort Lauderdale, Florida TRANSFER AGENT INVESTMENT MANAGER Ivy Mackenzie Services Corp. Ivy Management, Inc. PO Box 3022 700 South Federal Highway Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432 800.777.6472 800.456.5111
Mackenzie Logo 173 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY BOND FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY BOND FUND - -- INVESTMENT OBJECTIVE The Fund seeks a high level of current income. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in bonds rated in the four highest rating categories used by Moody's and S&P and similar investment-grade fixed income securities. To increase its potential yield, the Fund may invest up to 35% of its net assets in low-rated debt securities (commonly referred to as "high yield" or "junk" bonds). The Fund may also invest a portion of its assets in foreign debt securities to diversify its holdings and to increase its potential return. Other securities and investment techniques that the Fund's management team considers important in achieving the Fund's investment objective (or in controlling the Fund's exposure to risk) include zero coupon bonds. The Fund's management team targets for investment companies whose creditworthiness is believed to be stable or improving. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when interest rates are rising. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. As much as 35% of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could significantly weaken the Fund's returns if the issuer defaults on its payment obligations. FOREIGN SECURITY AND EMERGING-MARKET RISK: The Fund may invest up to 20% of its net assets in foreign issuers. Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. market and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with new or developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking current income, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 2 174 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table gives some indication of the risks of investing in the Fund by comparing the performance of the Fund's Advisor Class shares for the first full calendar year since its commencement on January 20, 1998 with a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. Annual Total Returns for the year ending For Advisor Class Shares* December 31 - ---------------------------------------------------------------------------
[Insert Bar Graph] * Any applicable account fees are not reflected, and if they were the returns shown above would be lower. Best quarter ___'99 ___% Worst quarter ___'99 ___%
Average Annual for the periods ending December 31, 1998 Total Returns - --------------------------------------------------------------------------------------------- Advisor Class Morningstar Morningstar Morningstar Corporate Bond Multi-Sector Long-Term Bond General Universe Bond Universe Universe - --------------------------------------------------------------------------------------------- Past Year % % % % Since Inception* % % % %
* Advisor Class shares of the Fund were first sold on January 20, 1998. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
fees paid directly from SHAREHOLDER FEES your investment - ----------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)..................................... none Maximum deferred sales charge (load) (as a percentage of purchase price).............. none Maximum sales charge (load) imposed on reinvested dividends....................... none Redemption fee*............................ none Exchange fee............................... none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ---------------------------------------------------- Management fees*......................... 0.75% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 0.36% Total annual Fund operating expenses..... 1.11%
*Management Fees are reduced to 0.50% for net assets over $100 million. - ------------------------------------------------------------------------- - -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ---------------- YEAR - ---------------- 1st $ 113 3rd 353 5th 612 10th 1,352
3 175 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL STRATEGIC BOND FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY INTERNATIONAL STRATEGIC BOND FUND - -- INVESTMENT OBJECTIVE The Fund seeks total return and, consistent with that objective, to maximize current income. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in a managed portfolio of foreign bonds. The Fund may also invest in U.S. bonds. The types of debt securities the Fund may hold include corporate, government, and mortgage or asset backed securities. At least 65% of the value of the Fund's portfolio is expected to be rated in the four highest rating categories used by Moody's and S&P. Among the other securities and investment techniques that the Fund's manager considers important in achieving the Fund's investment objective (or in controlling the Fund's exposure to risk) are: - - low rated debt securities (commonly referred to as "high yield" or "junk" bonds); and - - derivative investment techniques (such as options, futures, interest rate and credit swaps, and foreign currency exchange transactions). The Fund's manager invests in bonds and bond markets that are believed to be undervalued relative to other issuers or markets. In selecting bonds for the Fund's portfolio, the manager will consider yields, credit quality and the fundamental outlook for currency and interest rate trends in different parts of the world, and may also take into account the ability to hedge currency and local bond price risk. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. INTEREST RATE RISK: The Fund's debt security investments are susceptible to decline in a rising interest rate environment even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when interest rates are rising. CREDIT RISK: The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Many of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could significantly weaken the Fund's returns if the issuer defaults on its payment obligations. NON-DIVERSIFICATION RISK: The Fund is classified as "non-diversified" under the Investment Company Act of 1940, and may therefore invest a greater percentage of its assets in a particular issuer than a "diversified" fund. As a result, the Fund may also be more susceptible than a diversified fund to the price movements of certain securities it holds in its portfolio. FOREIGN SECURITY AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with new or developing economies. 4 176 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DERIVATIVES RISK: The Fund may, but is not required to, use a range of derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific equity or fixed-income market movements) or to enhance potential gain. The use of these derivative investment techniques involves a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the judgment of the Fund's manager as to certain market movements is incorrect, the risk of losses that are greater than if the derivative technique(s) had not been used. -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking a mix of total return and current income, but who can accept potentially dramatic fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. -- PERFORMANCE INFORMATION The Fund has been operating for less than a year, so no performance information is available. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund:
SHAREHOLDER fees paid directly from FEES your investment - ------------------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price).................................. none Maximum deferred sales charge (load) (as a percentage of purchase price)......... none Maximum sales charge (load) imposed on reinvested dividends.................... none Redemption fee*......................... none Exchange fee............................ none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.
ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - --------------------------------------------------------------------- Management fees.......................... 0.75% Distribution and/or service (12b-1) fees..................................... none Other expenses........................... 0.50% Total annual Fund operating expenses*.... 1.25%
*The Fund's Investment Manager has agreed to reimburse the Fund's expenses for the current fiscal year to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.25% of the Fund's average net assets (excluding 12b-1 fees and taxes). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 1.75% of the Fund's average net assets. ------------------------------------------------------------------------------ -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- ----------------- YEAR - ----------------- 1st $127 3rd 502 5th ____ 10th ____
5 177 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS - -- PRINCIPAL STRATEGIES IVY BOND FUND: The Fund seeks to achieve its investment objective of a high level of current income by investing primarily in investment grade corporate bonds (which are rated Baa or higher by Moody's or BBB or higher by S&P) and U.S. Government securities that mature in more than 13 months. The Fund may invest up to 35% of its net assets in low-rated debt securities (commonly referred to as "high yield" or "junk" bonds). As much as 20% of the Fund's portfolio may be invested in foreign securities. The Fund's manager targets for investment issuers with stable or improving credit profiles. Individual securities are selected on the basis of factors such as comparative yields and credit quality, and where appropriate, country-specific currency and interest rate trends. IVY INTERNATIONAL STRATEGIC BOND FUND: The Fund seeks to achieve its primary investment objective of total return, and secondarily current income, by investing in the debt securities of issuers in any nation. The Fund's portfolio is actively managed to limit its exposure to individual country, sector, interest rate and currency risks. The Fund may, however, invest more than 5% of a portion of its assets in a single issuer (see "Non-diversification risk" on page 4). Individual securities are selected based on factors such as yields, credit quality, and the fundamental outlook for country-specific currency and interest rate trends. BOTH FUNDS: Each Fund may from time to time take a temporary defensive position and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short-term notes and other money market securities. When a Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk (see "Risk Characteristics" below). - -- PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of a Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. Each Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in a Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: The following table identifies the investment techniques that each Fund's manager considers important in achieving the Fund's investment objective or in managing its exposure to risk (and that could therefore have a significant effect on a Fund's returns). Following the table is a description of the general risk characteristics of these investment techniques. Other investment methods that the Funds may use (such as derivative investments), but that are not likely to play a key role in their overall investment strategies, are described in the Funds' Statement of Additional Information (see back cover page for information on how you can receive a free copy).
- ------------------------------------------------------------- IVY INTERNATIONAL IVY BOND STRATEGIC INVESTMENT TECHNIQUE FUND BOND FUND - ------------------------------------------------------------- Debt securities............... X X Low-rated debt securities..... X X Sovereign debt................ X Zero coupon bonds............. X Foreign securities............ X X Emerging markets.............. X X Foreign currencies............ X X Derivatives................... X Illiquid securities........... X X Borrowing..................... X X Temporary defensive positions..................... X X
6 178 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RISK CHARACTERISTICS: - - DEBT SECURITIES, IN GENERAL: Investing in debt securities involves both interest rate and credit risk. The value of debt instruments generally increase as interest rates decline. Conversely, rising interest rates tend to cause the value of debt securities to decrease. The Fund's portfolio is therefore susceptible to losses in a rising interest rate environment. The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Bonds with longer maturities also tend to be more volatile than bonds with shorter maturities. - - LOW-RATED DEBT SECURITIES: In general, low-rated debt securities (commonly referred to as "high yield" or "junk" bonds) offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. For this reason, these bonds are considered speculative and could significantly weaken the Funds' returns. - - SOVEREIGN DEBT SECURITIES: Sovereign debt is issued by foreign governments. For a variety of reasons (such as cash flow problems, limited foreign reserves, and political constraints), the governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal or interest when due. A governmental entity's ability to honor its debt obligations to the investing Fund may also be contingent on its receipt from others (such as the International Monetary Fund and more solvent foreign governments) of specific disbursements, which may in turn be conditioned on the perceived health of the governmental entity's economy and/or its implementation of economic reforms. If any of these conditions fail, the Fund could lose the entire value of its investment for an indefinite period of time. - - ZERO COUPON BONDS: Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest (and are issued at a significant discount from face value). Because the income from zero coupon bonds is recognized currently for Federal income tax purposes, the amount of the unpaid, accrued interest a fund generally would be required to distribute as dividends includes that income (even though the fund has not actually received any income proceeds). The fund could be forced to sell other portfolio securities at a disadvantageous time and/or price in order to meet its distribution obligations. - - FOREIGN SECURITIES: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect a Fund's performance favorably or unfavorably, depending upon prevailing conditions at any given time. For example, the securities markets of many foreign countries may be smaller, less liquid and subject to greater price volatility than those in the U.S. Foreign investing may also involve brokerage costs and tax considerations that are not usually present in the U.S. markets. Other factors that can affect the value of a Fund's foreign investments include the comparatively weak supervision and regulation by some foreign governments of securities exchanges, brokers and issuers, and the fact that many foreign companies may not be subject to uniform accounting, auditing and financial reporting standards. It may also be difficult to obtain reliable information about the securities and business operations of certain foreign issuers. Settlement of portfolio transactions may also be delayed due to local restrictions or communication problems, which can cause a Fund to miss attractive investment opportunities or impair its ability to dispose of securities in a timely fashion (resulting in a loss if the value of the securities subsequently declines). - - FOREIGN CURRENCIES: Foreign securities may be denominated in foreign currencies, and the value of a Fund's investments, as measured in U.S. dollars, may be harmed by changes in foreign currency exchange rates and exchange control regulations. Currency conversions can also be costly. - - SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities are heightened in countries with new or developing econo- 7 179 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- mies. Among these additional risks are the following: - - securities that are even less liquid and more volatile than those in more developed foreign countries; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - increased settlement delays; - - unusually high inflation rates (which in extreme cases can cause the value of a country's assets to erode sharply); - - unusually large currency fluctuations and currency conversion costs; and - - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - - DERIVATIVE INVESTMENT TECHNIQUES: Ivy International Strategic Bond Fund may, but is not required to, use certain derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates and broad or specific market movements) or to enhance potential gain. Among the derivative techniques the Fund might use are options, futures, forward foreign currency contracts and foreign currency exchange transactions. Using put and call options could cause the Fund to lose money by forcing the sale or purchase of portfolio securities at inopportune times or for prices higher (in the case of put options) or lower (in the case of call options) than current market values, by limiting the amount of appreciation the Fund can realize on its investments, or by causing the Fund to hold a security it might otherwise sell. Futures transactions (and related options) involve other types of risks. For example, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of the Fund could cause losses on the hedging instrument that are greater than gains in the value of the Fund's position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, the Fund might not be able to close out a transaction before expiration without incurring substantial losses (and it is possible that the transaction cannot even be closed). In addition, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Foreign currency transactions (such as forward foreign currency contracts) can cause investment losses in a variety of ways. For example, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. There may also be an imperfect correlation between the Fund's portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. - - ILLIQUID SECURITIES: "Illiquid securities" are assets that may not be disposed of in the ordinary course of business within seven days at roughly the value at which the investing fund has valued the assets. These may be "restricted securities," which cannot be sold to the public without registration under the Securities Act of 1933 (in the absence of an exemption) or because of other legal or contractual restrictions on resale. Thus, while illiquid securities may offer the potential for higher returns than more readily marketable securities, there is a risk that the investing fund will not be able to dispose of them promptly at an acceptable price. - - BORROWING: For temporary or emergency purposes, each Fund may borrow up to a specific percentage of its total assets from qualified banks (10% in the case of Ivy Bond Fund and 20% in the case of Ivy International Strategic Bond Fund). Borrowing may exaggerate the effect on a Fund's share value or any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. 8 180 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -- OTHER IMPORTANT INFORMATION EUROPEAN MONETARY UNION: The Funds may have investments in Europe. On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, the Funds could experience investment losses. MANAGEMENT - -- INVESTMENT ADVISOR Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 IMI provides investment advisory and business management services to the Funds. IMI is an SEC-registered investment advisor with over $5 billion in assets under management, and provides similar services to the other seventeen series of Ivy Fund. For Ivy Bond Fund's fiscal year ending December 31, 1999, the Fund paid IMI a fee that was equal to 0.69% of the Fund's average net assets. Ivy International Strategic Bond Fund pays IMI a fee at the rate of 0.75% of the Fund's average net assets. - -- PORTFOLIO MANAGEMENT IVY BOND FUND: The Fund is managed by IMI's Fixed Income Team. Among the research sources and techniques that team members use during the investment decision-making process are: - - issuer financial statements; - - discussions with company managers and Wall Street analysts; - - credit rating agency opinions; and - - various financial publications. IVY INTERNATIONAL STRATEGIC BOND FUND: Richard A. Gluck, Vice President of IMI, is the Fund's portfolio manager. Before joining IMI, Mr. Gluck was a Vice President and portfolio manager at Oppenheimer Capital. He has been managing global fixed income funds since 1989. Mr. Gluck holds a Masters Degree in management with a concentration in finance from the M.I.T. Sloan School of Management. Mr. Gluck is supported by the members of IMI's Fixed Income Team, which is responsible for providing information on regional and country-specific economic and political developments and monitoring individual companies. Team members use a variety of research sources that include: - - brokerage reports; - - economic and financial news services; - - company reports; and 9 181 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- - - information from third party research firms (ranging from large investment banks with global coverage to local research houses). In many cases, particularly in emerging market countries, IMI's research analysts also conduct primary research by: - - meeting with company management; - - touring facilities; and - - speaking with local research professionals. SHAREHOLDER INFORMATION - -- PRICING OF FUND SHARES Each Fund calculates its share price by dividing the value of the Fund's net assets by the total number of its shares outstanding as of the close of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the Exchange is open for trading (normally any weekday that is not a national holiday). Each portfolio security that is listed or traded on a recognized stock exchange is valued at the security's last quoted sale price on the exchange on which it is principally traded. If no sale is reported at that time, the average between the last bid and asked prices is used. Securities and other Fund assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Funds' Board of Trustees. IMI may also price a foreign security at its fair value if events materially affecting the estimated value of the security occur between the close of the foreign exchange on which the security is principally traded and the time as of which a Fund prices its shares. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of a Fund in an attempt to profit from short-term market movements. When such fair-value pricing occurs, however, there may be some period of time during which a Fund's share price and/or performance information is not available. Ivy International Strategic Bond Fund normally invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares. Therefore, the Fund's share value may change on days when shareholders will not be able to purchase or redeem shares. The number of shares you receive when you place a purchase or exchange order, and the payment you receive after submitting a redemption request, is based on the Fund's net asset value ("NAV") next determined after your instructions are received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent) or by your registered securities dealer. - -- HOW TO BUY SHARES Please read these sections carefully before investing. Advisor Class shares are offered through this Prospectus only to the following investors: - - trustees or other fiduciaries purchasing shares for employee benefit plans that are sponsored by organizations that have at least 1,000 employees; - - any account with assets of at least $10,000 if (a) a financial planner, trust company, bank trust department or registered investment adviser has investment discretion, and where the investor pays such person as compensation for his advice and other services an annual fee of at least 0.50% on the assets in the account, or (b) such account is established under a "wrap fee" program and the account holder pays the sponsor of the program an annual fee of at least 0.50% on the assets in the account; - - officers and Trustees of Ivy Fund (and their relatives); - - directors and employees of Mackenzie Investment Management Inc. or its affiliates; - - Directors, officers, partners, registered representatives, employees and retired employees (and their relatives) of dealers having a sales agreement with IMDI (or trustees or custodians of any qualified retirement plan or IRA established for the benefit of any such person.) The following investment minimums, sales charges and expenses apply. 10 182 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------- Minimum initial investment*............. $10,000 Minimum subsequent investment*.......... $250 Initial sales charge.................... None CDSC.................................... None Service and distribution fees........... None
*Minimum initial and subsequent investments for retirement plans are $25. - -- SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the end of this Prospectus. Enclose a check payable to the Fund in which you wish to invest. You should note on the check that you wish to purchase Advisor Class shares (see minimum initial investments above.) Deliver your application materials to your registered representative or selling broker, or send them to one of the addresses below: - - BY REGULAR MAIL: Ivy Mackenzie Services Corp. PO Box 3022 Boca Raton, FL 33431-0922 - - BY COURIER: Ivy Mackenzie Services Corp. 700 South Federal Hwy. Boca Raton, FL 33432-6114 - -- BUYING ADDITIONAL SHARES There are several ways to increase your investment in a Fund: - - BY MAIL: Send your check with a completed investment slip (attached to your account statement) or written instructions indicating the account registration, Fund number or name, and account number. Mail to one of the addresses above. - - THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. - - BY WIRE: Purchases may also be made by wiring money from your bank account to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call IMSC at 800.777.6472. Wiring instructions are as follows: First Union National Bank of Florida Jacksonville, FL ABA #063000021 Account #2090002063833 For further credit to: Your Account Registration Your Fund Number and Account Number - - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Ivy Fund account. Complete sections 6A and 7B of the Account Application. - -- HOW TO REDEEM SHARES SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your registered securities dealer or directly through IMSC. If you choose to redeem through your registered securities dealer, the dealer is responsible for properly transmitting redemption orders in a timely manner. If you choose to redeem directly through IMSC, you have several ways to submit your request: - - BY MAIL: Send your written redemption request to IMSC at one of the addresses at left. Be sure that all registered owners listed on the account sign the request. Medallion signature guarantees and supporting legal documentation may be required. When you redeem, IMSC will normally send redemption proceeds to you on the next business day, but may take up to seven days (or longer in the case of shares recently purchased by check). - - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or custodial account. To process your redemption order by telephone, you must have telephone redemption privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. 11 183 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- - - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds electronically drawn each month from your Ivy Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: - - BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. - - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. - - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. IMPORTANT REDEMPTION INFORMATION: - - If you own shares of more than one class of a Fund, the Fund will redeem first the shares having the highest 12b-1 fees, unless you instruct otherwise. - - A Fund may (on 60 days' notice) redeem the accounts of shareholders whose investment, including sales charges paid, has been less than $1,000 for more than 12 months. - - A Fund may take up to seven days (or longer in the case of shares recently purchased by check) to send redemption proceeds. - -- HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of another Ivy fund, subject to certain restrictions (see "Important Exchange Information" below). SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as follows: - - BY MAIL: Send your written exchange request to IMSC at one of the addresses on page 12 of this Prospectus. Be sure that all registered owners listed on the account sign the request. - - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. IMPORTANT EXCHANGE INFORMATION: - - You must exchange into the same share class you currently own. - -- Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - - It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee (in the case of certain Funds), or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. - -- DIVIDENDS, DISTRIBUTIONS AND TAXES - - The Funds generally declare and pay dividends and capital gain distributions (if any) at least once a year. - - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - - Reinvested dividends and distributions are added to your account at NAV and are not subject to a sales charge regardless of which share class you own. - - Cash dividends and distributions can be sent to you: - - BY MAIL: a check will mailed to the address of record unless otherwise instructed. 12 184 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - - BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into your bank account. To change your dividend and/or distribution options, call IMSC at 800.777.6472. Dividends ordinarily will vary from one class to another. The Funds intend to declare and pay dividends monthly. The Funds will distribute net realized capital gains, if any, at least once a year. The Funds may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of a Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of a Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by a Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, are taxable to you as long-term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Funds' managers may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, they do not generally manage the Funds to optimize tax efficiencies. If shares of a Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by a Fund during January of the following calendar year. In certain years, you may be able to claim a credit or deduction on your income tax return for your share of foreign taxes paid by your Fund. Upon the sale or exchange of your Fund shares, you may realize a capital gain or loss which will be long term or short term, generally depending upon how long you held your shares. A Fund may be required to withhold U.S. Federal income tax at the rate of 31% of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Fund, including the status of distributions from the Funds under applicable state or local law. 13 185 [IVY LEAF LOGO] FINANCIAL HIGHLIGHTS The "Financial highlights" tables are intended to help you understand each Fund's financial performance and reflects results for a single Fund share. The total returns in the tables represent the rate an investor would have earned (or lost) each year on an investment in each Fund (assuming reinvestment of all dividends and distributions). This information has been audited by , whose report, along with each Fund's financial statements, is included in its Annual Report to shareholders (which is available upon request). - --------------------------------------------------------------------------------
IVY BOND FUND ADVISOR CLASS ------------------------- For the period January 20, 1998 (Commencement) to December 31, - -------------------------------------------------------------------------------------------------------------- 1999 1998 SELECTED PER SHARE DATA --------------------------------------------- Net asset value, beginning of period....................... $ $10.28 --------------------------------------------- Loss from investment operations Net investment income.................................... .69 Net gains or losses on securities (both realized and unrealized)........................................ (.72) --------------------------------------------- Total from investment operations......................... (.03) --------------------------------------------- Less distributions Dividends From net investment income............................. .69 In excess of net investment income..................... .02 --------------------------------------------- Total distributions.................................... .71 --------------------------------------------- Net asset value, end of period............................. $ $ 9.54 ============================================= Total return (%)(a)........................................ (.30) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................... $ $ 347 Ratio of expenses to average net assets (%)(b)............. 1.11 Ratio of net investment income to average net assets (%)(b)................................................... 7.16 Portfolio turnover rate (%)................................ 43 (a) Total return repre- sents aggregate total return and does not reflect a sales charge. (b) Annualized
[IVY LEAF LOGO]
============================================================================== IVY INTERNATIONAL STRATEGIC BOND FUND For the period May 3, 1999 (Commencement) to December 31, 1999 - ------------------------------------------------------------------------------ ADVISOR CLASS SELECTED PER SHARE DATA Net asset value, beginning of period................... $ ----------------- Income (loss) from investment operations Net investment loss (a)(b)........................... Net gains or losses on securities (both realized and unrealized)(a)..................................... ----------------- Total from investment operations..................... ----------------- Net asset value, end of period......................... $ ================= Total return (%)(c).................................... RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............... $ Ratio of expenses to average net assets (%) With expense reimbursement (%)(d).................... Without expense reimbursement (%)(d)................. Ratio of net investment income (loss) to average net assets (%)(a)(b)(d).............................. Portfolio turnover rate (%)............................
14 186 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 15 187 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 16 188 Account Application FUND USE ONLY ___________________ Account Number ___________________ Dealer/Branch/Rep ___________________ Account Type/Soc Cd [IVY FUNDS LOGO] Please mail applications and checks to: USE FOR ADVISOR CLASS ONLY Ivy Mackenzie Services Corp., P.O. Box 3022, Boca Raton, Florida 33431-0922 This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. 1 REGISTRATION Name ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Address__________________________________________________________________ City _________________________________________ State _______ Zip ________ Phone # (day) (___)_________________ Phone # (evening) (__)_____________ __ Individual __ UGMA/UTMA __ Sole proprietor __ Joint tenant __ Corporation __ Trust __ Estate __ Partnership __ Other Date of trust ________________ Minor's state of residence ______________ 2 TAX I.D. Citizenship: __ U.S. __ Other (please specify): __________________ Social security # _____-____-_______ or Tax identification _____________ Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) Please see the "Dividends, distributions and taxes" section of the Prospectus for additional information on completing this section. 3 DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify IMSC of any purchases made under a Letter of Intent or Rights of Accumulation. Dealer name _____________________________________________________________ Branch office address ___________________________________________________ City ______________________________ State _______________ Zip _________ Representative's name ___________________________________________________ Representative's # _________________ Representative's phone _____________ Authorized signature of dealer __________________________________________ 4 INVESTMENTS A. Enclosed is my check ($10,000 minimum) for $__________ made payable to the appropriate fund. Please invest it in Advisor Class Shares of the following fund(s): $ ______________ Ivy Bond Fund $ _______________ Ivy International Strategic Bond Fund B. FOR DEALER USE ONLY Confirmed trade orders: ______________ ________________ ___________ Confirm Number Number of Shares Trade Date 189 5 DISTRIBUTION OPTIONS I would like to reinvest dividends and capital gains into additional shares in this account at net asset value unless a different option is checked below. A. ___ Reinvest all dividends and capital gains into additional shares of a different Ivy fund account. Fund name: ________________________________________________________ Account #: ________________________________________________________ B. ___ Pay all dividends in cash and reinvest capital gains into additional shares in this account or a different Ivy fund account. Fund name: ________________________________________________________ Account #: ________________________________________________________ C. ___ Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT TO: _____ the address listed in the registration _____ the special payee listed in Section 7A (by mail) _____ the special payee listed in Section 7B (by EFT) 6 OPTIONAL SPECIAL FEATURES A. AUTOMATIC INVESTMENT METHOD (AIM) ___ I wish to have my bank account listed in section 7B automatically debited via EFT on a predetermined frequency and invested into my Ivy Fund account listed below. 1. Withdraw $____ for each time period indicated below and invest my bank proceeds in Advisor Class shares of the following Ivy fund: Fund name: __________________________________________________________ Account #: __________________________________________________________ 2. Debit my bank account: ___ Annually (on the ___ day of the month of ___________________). ___ Semiannually (on the ___ day of the months of _______ and _______). ___ Quarterly (on the ___ day of the first/second/third month of each calendar quarter). (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the _____ days ___ 3 times per month on the _____ days ___ 4 times per month on the _____ days B. SYSTEMATIC WITHDRAWAL PLANS (SWP)** ___ I wish to have my Ivy Fund account automatically debited on a predetermined frequency and the proceeds sent to me per my instructions below. 1. Withdraw ($250 minimum) $_____ for each time period indicated below from the following Ivy Fund account: Fund name: ________________________________________________________ Account #: ________________________________________________________ 2. Withdraw from my Ivy Fund account: ___ Annually (on the _____ day of the month of __________). ___ Semiannually (on the _____ day of the months of ___________ and __________). ___ Quarterly (on the _____ day of the first/second/third month of each calendar quarter. (CIRCLE ONE) ___ Monthly*___ once per month on the ___ day ___ twice per month on the _____ days ___ 3 times per month on the _____ days ___ 4 times per month on the _____ days 3. I request the withdrawal proceeds be: ___ sent to the address listed in the registration ___ sent to the special payee listed in section 7A or 7B. ___ invested into additional Advisor Class shares of a different Ivy Fund: Fund name: ________________________________________________________ Account #: ________________________________________________________ Note: A minimum balance of $10,000 is required to establish a SWP. 6 OPTIONAL SPECIAL FEATURES (CONT.) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** ___ yes ___ no By checking "yes" immediately above, I authorize IMSC to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may be wire transferred to the bank account designated ($1,000 minimum). (COMPLETE SECTION 7B). D. TELEPHONE EXCHANGES** ___ yes ___ no By checking "yes" immediately above, I authorize exchanges by telephone among the Ivy funds upon instructions from any person as more fully described in the Prospectus. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone exchange privilege will be provided automatically. E. TELEPHONIC REDEMPTIONS** ___ yes ___ no By checking "yes" immediately above, the Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds are to be payable to the shareholder of record and mailed to the address of record. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone redemption privilege will be provided automatically. * There must be a period of at least seven calendar days between each investment (AIM)/withdrawal (SWP) period. ** This option may not be used if shares are issued in certificate form. 7 SPECIAL PAYEE A. MAILING ADDRESS: Please send all disbursements to this payee: Name of bank or individual _______________________________________________ Account # (if applicable) ________________________________________________ Street ___________________________________________________________________ City _____________________________ State _________________ Zip ___________ B. FED WIRE/EFT INFORMATION Financial institution ____________________________________________________ ABA # ____________________________________________________________________ Account # ________________________________________________________________ Street ___________________________________________________________________ City _____________________________ State _________________ Zip ___________ (PLEASE ATTACH A VOIDED CHECK.) 8 SIGNATURES Investors should be aware that the failure to check the "No" under Section 6D or 6E above means that the Telephone Exchange/ Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Please see "How to exchange shares" and "How to redeem shares" in the Prospectus for more information on these privileges. I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this application by reference. I am certifying my taxpayer information as stated in Section 2. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. ________________________________________ _______________________________ Signature of Owner, Custodian, Trustee or Date Corporate Officer ________________________________________ _______________________________ Signature of Joint Owner, Co-Trustee or Date Corporate Officer (Remember to sign Section 8) DETACH ON PERFORATION TO MAIL 190 * Symbol not assigned as of this printing - -------------------------------------------------------------------------------- -- QUOTRON SYMBOLS AND CUSIP NUMBERS
- ---------------------------------------------------------------------------------------- FUND SYMBOL CUSIP - ---------------------------------------------------------------------------------------- Ivy Bond Fund Advisor Class IVBVX 465897296 Ivy International Strategic Bond Fund Advisor Class * 465898500 - ----------------------------------------------------------------------------------------
191 (Ivy Funds Logo) -- HOW TO RECEIVE MORE INFORMATION ABOUT THE FUNDS Additional information about the Funds and their investments is contained in the Funds' Statement of Additional Information dated _________, 2000 (the "SAI"), which is incorporated by reference into this Prospectus, and each Fund's annual and semiannual reports to shareholders. Each Fund's annual report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its most recent fiscal year. The SAI and annual and semiannual reports are available upon request and without charge from the Distributor at the following address and phone number. Ivy Mackenzie Distributors, Inc. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432 800.456.5111 Information about the Funds (including the SAI and annual and semiannual reports) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (please call 1-202-942-8090 for further details). Reports and other information about the Funds are also available on the EDGAR Database on the SEC's Internet Website (www.sec.gov), and copies of this information may be obtained, upon payment of a copying fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009. -- SHAREHOLDER INQUIRIES Please call Ivy Mackenzie Services Corp., the Funds' transfer agent, regarding any other inquiries about the Funds at 800.777.6472. www.ivymackenzie.com E-mail: invest@ivymackenzie.com Investment Company Act File No. 811-1028 01FXINADV0499 192 [Ivy Funds Logo] This is your prospectus from IVY MACKENZIE DISTRIBUTORS, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, Florida 33432 800.456.5111 , 2000 IVY INTERNATIONAL FUND Ivy Fund is a registered open-end investment company consisting of twenty-one separate portfolios. This Prospectus relates to the Class A, Class B, Class C and Class I shares of Ivy International Fund (the "Fund"). On April 18, 1997 the Fund suspended the offer of its shares to new investors. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. Investments in the Fund are not deposits of any bank and are not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. -- CONTENTS 2 Ivy International Fund 4 Additional information about investment strategies and risks 6 Management 7 Shareholder information 14 Financial highlights 17 Account application OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, Massachusetts CUSTODIAN AUDITORS Brown Brothers Harriman & Co. Boston, Massachusetts Fort Lauderdale, Florida TRANSFER AGENT INVESTMENT MANAGER Ivy Mackenzie Services Corp. Ivy Management, Inc. PO Box 3022 700 South Federal Highway Boca Raton, Florida 33431-0922 Boca Raton, Florida 33432 800.777.6472 800.456.5111
(Ivy Mackenzie Logo) 193 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND - -------------------------------------------------------------------------------- (GLOBE ARTWORK) IVY INTERNATIONAL FUND - -- INVESTMENT OBJECTIVE The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. - -- PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 65% of its total assets in equity securities principally traded in European, Pacific Basin and Latin American markets. To enhance potential return, the Fund may invest in countries with new or developing economies. The Fund's manager uses a low turnover, value approach in selecting the Fund's investments. - -- PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK: Securities selected for the Fund might not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor, so you could lose money if you redeem your Fund shares at a time when the Fund's equity portfolio is not performing as well as expected. FOREIGN SECURITY RISK: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with new or developing economies. - -- WHO SHOULD INVEST* The Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. *You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. 2 194 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and how the Fund's average annual returns since it was first offered for sale to the public on April 30, 1986 compare with those of a broad measure of market performance. The Fund's past performance is not an indication of how the Fund will perform in the future. (CHART)
ANNUAL TOTAL RETURNS for the years ending FOR CLASS A SHARES* December 31(**) ----------------------------------------------------------- '89 28.26% '90 (12.97)% '91 16.93% '92 0.07% '93 48.37% '94 3.92% '95 12.65% '96 19.72% '97 10.38% '98 7.34% '99 _____%
*Any applicable sales charges and account fees are not reflected, and if they were the returns shown above would be lower. The returns for the Fund's other three classes of shares during these periods were different from those of Class A because of variations in their respective expense structures. **Hakan Castegren, in his relationship with the following firms, has served as the Fund's portfolio manager since its inception: Northern Cross Investments Limited (since April 1, 1993); Boston Overseas Investors, Inc. (July 1, 1990 -- March 31, 1993) and Marsh & Cunningham (November 15, 1985 -- June 30, 1990). Best quarter Q1 '87: 24.22% Worst quarter Q4 '87: (22.74%)
for the periods ending AVERAGE ANNUAL TOTAL RETURNS(#) December 31, 1998 ------------------------------------------------------------------------------------------- MORNINGSTAR LIPPER MSCI FOREIGN INTL EAFE STOCK EQUITY CLASS A CLASS B CLASS C CLASS I INDEX UNIVERSE CATEGORY ------------------------------------------------------------------------------------------ Past year........ 1.17% 1.43% 5.46% 7.75% 20.00% 12.26% 13.02% Past 5 years..... 9.37% 9.51% n/a 10.81% 9.19% 7.44% 7.87% Past 10 years.... 11.73% n/a n/a n/a 5.54% 8.54% 9.29% Since inception: Class B*......... n/a 10.82% n/a n/a 8.39% 8.23% 8.88% Class C**........ n/a n/a 10.30% n/a 7.84% 7.92% 8.51% Class I***....... n/a n/a n/a 11.77% 8.74% 7.99% 8.76%
(*)Performance figures reflect any applicable sales charges. *The inception date for the Fund's Class B shares is October 23, 1993. MSCI Index performance calculated from October 31, 1993. Morningstar performance calculated from November 1, 1993. Lipper performance calculated from October 28, 1993. **The inception date for the Fund's Class C shares is April 30, 1996. ***The inception date for the Fund's Class I shares is October 6, 1994. MSCI Index performance calculated from September 30, 1994. Morningstar performance calculated from October 1, 1994. - -- FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: fees paid directly from SHAREHOLDER FEES your investment - --------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I - ------------------------------------------------------------------ Maximum sales charge (load) imposed on purchases (as a percentage of offering price)..................... 5.75% none none none Maximum deferred sales charge (load) (as a percentage of purchase price)..................... none 5.00% 1.00% none Maximum sales charge (load) imposed on reinvested dividends.................. none none none none Redemption fee*............ none none none none Exchange fee............... none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. ANNUAL FUND expenses that are OPERATING EXPENSES deducted from Fund assets - ------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I - ---------------------------------------------------------------- Management fees*......... 1.00% 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees..... 0.25% 1.00% 1.00% none Other expenses........... 0.33% 0.41% 0.40% 0.18% Total annual Fund operating expenses....... 1.58% 2.41% 2.40% 1.18%
*Management Fees are reduced to 0.90% for net assets over $2.5 billion. - -------------------------------------------------------------------------------- -- EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain, the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
- -------------------------------------------------------------------------------- (no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I - -------------------------------------------------------------------------------- 1st $ 726 $ 744 $ 244 $ 343 $ 243 $ 120 3rd 1,045 1,051 751 748 748 375 5th 1,386 1,485 1,285 1,280 1,280 649 10th 2,345 2,541 2,541 2,736 2,736 1,432
3 195 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS - -- PRINCIPAL STRATEGIES The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in equity securities principally traded in European, Pacific Basin and Latin American markets. The Fund invests in a variety of economic sectors and industry segments to reduce the effects of price volatility in any one area, and usually is invested in at least three different countries. The Fund's manager focuses on rapidly expanding foreign economies and companies that generally have at least $1 billion in capitalization at the time of investment and a solid history of operations. Individual securities are selected on the basis of value indicators (such as earnings, cash flow, assets and long-term growth potential) and are reviewed for fundamental financial strength. The Fund may from time to time take a temporary defensive position and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short-term notes and other money market securities. When the Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk. - -- PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of the Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. The Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in the Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: Since the Fund invests heavily in the equity securities of foreign issuers, it is more susceptible to the risks associated with these types of securities than a fund that invests primarily in the securities of U.S. issuers and/or debt securities. Following is a description of these risks, along with the risks commonly associated with the other securities and investment techniques that the Fund's portfolio manager considers important in achieving the Fund's investment objective or in managing the Fund's exposure to risk (and that could therefore have a significant effect on the Fund's returns). Other investment methods that the Fund may use (such as derivative investments), but that do not play a key role in the Fund's overall investment strategy, are described in the Fund's Statement of Additional Information (see back cover page for information on how you can receive a free copy). - - EQUITY SECURITIES: Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller-company securities may also be higher than those of larger companies. - - DEPOSITORY RECEIPTS: The Fund may acquire interests in foreign issuers in the form of sponsored or unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and similar types of depository receipts. ADRs typically are issued by a U.S. bank or trust company and represent ownership of the underlying securities issued by a foreign corporation. GDRs and other types of depository receipts are usually issued by foreign banks or trust companies. The Fund's investments in ADRs, GDRs and other depository receipts are viewed as investments in the underlying securities. Depository receipts can be difficult to price and are not always exchange-listed. Unsponsored depository programs also are organized independently without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. - - FOREIGN SECURITIES: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance favorably or unfavorably, 4 196 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- depending upon prevailing conditions at any given time. For example, the securities markets of many foreign countries may be smaller, less liquid and subject to greater price volatility than those in the U.S. Foreign investing may also involve brokerage costs and tax considerations that are not usually present in the U.S. markets. Other factors that can affect the value of the Fund's foreign investments include the comparatively weak supervision and regulation by some foreign governments of securities exchanges, brokers and issuers, and the fact that many foreign companies may not be subject to uniform accounting, auditing and financial reporting standards. It may also be difficult to obtain reliable information about the securities and business operations of certain foreign issuers. Settlement of portfolio transactions may also be delayed due to local restrictions or communication problems, which can cause the Fund to miss attractive investment opportunities or impair its ability to dispose of securities in a timely fashion (resulting in a loss if the value of the securities subsequently declines). - - SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities are heightened in countries with developing economies. Among these additional risks are the following: - securities that are even less liquid and more volatile than those in more developed foreign countries; - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - increased settlement delays; - abrupt changes in exchange rate regime or monetary policy; - unusually large currency fluctuations and currency conversion costs (see "Foreign Currencies" below); and - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). - - FOREIGN CURRENCIES: Many of the Fund's securities are denominated in foreign currencies and the value of the Fund's investments as measured in U.S. dollars may be harmed by changes in foreign currency exchange rates and exchange control regulations. Currency conversion can also be costly. - - FOREIGN CURRENCY EXCHANGE TRANSACTIONS AND FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may, but is not required to, use foreign currency exchange transactions and forward foreign currency contracts to hedge certain market risks (such as interest rates, currency exchange rates and broad or specific market movement). These investment techniques involve a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the Fund's judgment as to certain market movements is incorrect, the risk of losses that are greater than if the investment technique had not been used. For example, there may be an imperfect correlation between the Fund's portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. In addition, although the use of these investment techniques for hedging purposes should tend to minimize the risk of loss due to a decline in the value of the hedged position, they also tend to limit any potential gain that might result from an increase in the position's value. - - ILLIQUID SECURITIES: The Fund may invest up to 15% of its net assets in "illiquid securities," which are assets that may not be disposed of in the ordinary course of business within seven days at roughly the value at which the Fund has valued the assets. Some of these may be "restricted securities," which cannot be sold to the public without registration under the Securities Act of 1933 (in the absence of an exemption) or because of other legal or contractual restrictions on resale. Thus, while illiquid securities may offer the potential for higher returns than more readily marketable securities, there is a risk that the Fund will not be able to dispose of them promptly at an acceptable price. - - WARRANTS: As a holder of certain securities, the Fund may have the opportunity to purchase warrants. The holder of a warrant pays for the right to purchase a given number of an issuer's shares at a specified price until the warrant expires. If a warrant is not exercised by the date 5 197 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND - -------------------------------------------------------------------------------- of its expiration (such as when the underlying securities are no longer an attractive investment), the Fund would lose what it paid for the warrant. - - BORROWING: For temporary or emergency purposes (such as meeting shareholder redemption requests within the time periods specified under the Investment Company Act of 1940), the Fund may borrow up to 10% of the value of its total assets from qualified banks. Borrowing may exaggerate the effect on the Fund's share value of any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. - -- OTHER IMPORTANT INFORMATION EUROPEAN MONETARY UNION: On January 1, 1999, a new European currency called the "euro" was introduced and adopted for use by eleven European countries. The transition to daily usage of the euro is scheduled to be completed by December 31, 2001, at which time euro bills and coins will be put into circulation. Certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they decide to do so. Should this occur, the Fund could experience investment losses. MANAGEMENT - -- INVESTMENT ADVISOR Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza 700 South Federal Highway, Suite 300 Boca Raton, Florida 33432 IMI provides investment advisory and business management services to the Fund. IMI is an SEC-registered investment advisor with over $5 billion in assets under management, and provides similar services to the other eighteen series of the Trust. For the Fund's fiscal year ending December 31, 1999, the Fund paid to IMI a fee equal to [1.00]% of the Fund's average net assets. Northern Cross Investments Limited ("Northern Cross"), an SEC-registered investment advisor located at 48 Par-La-Ville Road, Hamilton, HM 11 Bermuda, serves as subadvisor to the Fund under an Agreement with IMI. Northern Cross began operations in 1993, and as of the end of 1999 had over $10 billion in assets under management. For its services, Northern Cross receives a fee from IMI that is equal, on an annual basis, to 0.60% of the first $1.5 billion in average net assets, 0.55% of 6 198 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the next $1 billion in average net assets and 0.50% of the Fund's average net assets over $2.5 billion. - -- PORTFOLIO MANAGER Hakan Castegren, President of Northern Cross, has managed the Fund since 1986. Mr. Castegren has more than 40 years of professional investment experience and holds an MBA from the Stockholm School of Economics. SHAREHOLDER INFORMATION - -- PRICING OF FUND SHARES The Fund calculates its share price by dividing the value of the Fund's net assets by the total number of its shares outstanding as of the close of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each day the Exchange is open for trading (normally any weekday that is not a national holiday). Each portfolio security that is listed or traded on a recognized stock exchange is valued at the security's last quoted sale price on the exchange on which it is principally traded. If no sale is reported at that time, the average between the last bid and asked prices is used. Securities and other Fund assets for which market prices are not readily available are priced at their fair value as determined by IMI in accordance with procedures approved by the Fund's Board of Trustees. IMI may also price a foreign security at its fair value if events materially affecting the estimated value of the security occur between the close of the foreign exchange on which the security is principally traded and the time as of which the Fund prices its shares. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of the Fund in an attempt to profit from short-term market movements. When such fair-value pricing occurs, however, there may be some period of time during which the Fund's share price and/or performance information is not available. The number of shares you receive when you place a purchase or exchange order, and the payment you receive after submitting a redemption request, is based on the Fund's net asset value ("NAV") next determined after your instructions are received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer agent) or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge (see "Choosing the appropriate class of shares" below). Since the Fund normally invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, the Fund's share value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. - -- HOW TO BUY SHARES Please read these sections carefully before investing. Effective April 18, 1997, the Fund suspended the offer of its shares to new investors. Shares of the Fund are available for purchase only by existing shareholders of the Fund. Once a shareholder's account has been liquidated, the shareholder may not invest in the Fund at a later date. CHOOSING THE APPROPRIATE CLASS OF SHARES: The essential features of the Fund's different classes of shares are described below. If you do not specify on your Account Application which class of shares you are purchasing, it will be assumed that you are purchasing Class A shares. The Fund has adopted separate distribution plans pursuant to Rule 12b-1 under the 1940 Act for its Class A, B and C shares that allow the Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Because these fees are paid out of the Fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. - - CLASS A SHARES: Class A shares are sold at net asset value plus a maximum sales charge of 5.75% (the "offering price"). The sales charge may be reduced or eliminated if certain conditions are met (see "Additional purchase information" on page 8). Class A shares are subject to a 0.25% Rule 12b-1 service fee. - - CLASS B SHARES: Class B shares are offered at net asset value, without an initial sales charge, 7 199 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND - -------------------------------------------------------------------------------- but subject to a contingent deferred sales charge ("CDSC") that declines from 5.00% to zero on certain redemptions within six years of purchase. Class B shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee, and convert automatically into Class A shares eight years after purchase. - - CLASS C SHARES: Class C shares are offered at net asset value, without an initial sales charge, but subject to a CDSC of 1.00% for redemptions within the first year of purchase. Class C shares are subject to a 0.75% Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee. - - CLASS I SHARES: Class I shares are offered to certain classes of investors at net asset value, without any sales load or Rule 12b-1 fees. The following table displays the various investment minimums, sales charges and expenses that apply to each class.
- -------------------------------------------------------------------- CLASS A CLASS B CLASS C CLASS I - -------------------------------------------------------------------- Minimum initial investment*.......... $1,000 $1,000 $1,000 $5,000,000 Minimum subsequent investment*.......... $100 $100 $100 $10,000 Initial sales charge............... Maximum None None None 5.75%, with options for a reduction or waiver CDSC................. None, Maximum 1.00% for None except on 5.00%, the first certain declines year NAV over six purchases years Service and distribution fees.... 0.25% 0.75% 0.75% None service distribution distribution fee fee and fee and 0.25% 0.25% service fee service fee
*Minimum initial and subsequent investments for retirement plans are $25. - -- ADDITIONAL PURCHASE INFORMATION CLASS A SHARES: Class A shares are sold at a public offering price equal to their net asset value per share plus an initial sales charge, as set forth below (which is reduced as the amount invested increases):
- --------------------------------------------------------------- SALES SALES PORTION OF CHARGE AS A CHARGE AS A PUBLIC PERCENTAGE PERCENTAGE OFFERING OF PUBLIC OF NET PRICE OFFERING AMOUNT RETAINED BY AMOUNT INVESTED PRICE INVESTED DEALER - --------------------------------------------------------------- Less than $50,000..... 5.75% 6.10% 5.00% $50,000 but less than $100,000.............. 5.25% 5.54% 4.50% $100,000 but less than $250,000.............. 4.50% 4.71% 3.75% $250, 000 but less than $500,000......... 3.00% 3.09% 2.50% $500,000 or over*..... 0.00% 0.00% 0.00%
*A CDSC of 1.00% may apply to Class A shares that are redeemed within two years of the end of the month in which they were purchased. Class A shares that are acquired through reinvestment of dividends or distributions are not subject to any sales charges. HOW TO REDUCE YOUR INITIAL SALES CHARGE: - "Rights of Accumulation" permits you to pay the sales charge that applies to the cost or value (whichever is higher) of all Ivy Fund Class A shares you own. - A "Letter of Intent" permits you to pay the sales charge that would apply to your cumulative purchase of Fund shares over a 13-month period (certain restrictions apply). HOW TO ELIMINATE YOUR INITIAL SALES CHARGE: You may purchase Class A shares at NAV (without an initial sales charge or a CDSC) through any one of the following methods: - through certain investment advisors and financial planners who charge a management, consulting or other fee for their services; - under certain qualified retirement plans; - as an employee or director of Mackenzie Investment Management Inc. or its affiliates; - as an employee of a selected dealer; or - through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Fund are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in 8 200 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- assets or fewer than 500 eligible employees. For further information see "Group Systematic Investment Program" in the SAI. Certain trust companies, bank trust departments, credit unions, savings and loans and other similar organizations may also be exempt from the initial sales charge on Class A shares. You may also purchase Class A shares at NAV if you are investing at least $500,000 through a dealer or agent. Ivy Mackenzie Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the dealer or agent (out of IMDI's own resources) for its distribution assistance according to the following schedule:
- -------------------------------------------------- PURCHASE AMOUNT COMMISSION - -------------------------------------------------- First $3,000,000...................... 0.50% Next $2,000,000....................... 0.25% Over $5,000,000....................... 0.10%
IMDI may from time to time pay a bonus or other cash incentive to dealers (other than IMDI), including those that employ a registered representative who during a specified time period sells a minimum dollar amount of shares of the Fund and/or other funds distributed by IMDI. CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to an initial sales charge but are subject to a CDSC. If you redeem your Class C shares within one year of purchase they will be subject to a CDSC of 1.00%, and Class B shares redeemed within six years of purchase will be subject to a CDSC at the following rates:
- ---------------------------------------------------- CDSC AS A PERCENTAGE OF YEAR SINCE DOLLAR AMOUNT PURCHASE SUBJECT TO CHARGE - ---------------------------------------------------- First...................... 5.00% Second..................... 4.00% Third...................... 3.00% Fourth..................... 3.00% Fifth...................... 2.00% Sixth...................... 1.00% Seventh and thereafter..... 0.00%
The CDSC for both Class B and Class C shares will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. No charge will be assessed on increases in account value above the original purchase price or on reinvested dividends and distributions. Shares will be redeemed on a lot-by-lot basis in the following order: - - Shares held more than six years; - - Shares acquired through reinvestment of dividends and distributions; - - Shares subject to the lowest CDSC percentage, on a first-in, first-out basis (1) with the portion of the lot attributable to capital appreciation, which is not subject to a CDSC, redeemed first, then (2) the portion of the lot attributable to your original basis, which is subject to a CDSC. The CDSC for Class B shares is waived for: - - Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 1/2 years old. - - Redemptions by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers. - - Redemptions resulting from a tax-free return of excess contribution to an IRA. - - Withdrawals resulting from shareholder death or disability provided that the redemption is requested within one year of death or disability. - - Withdrawals through the Systematic Withdrawal Plan of up to 12% per year of your account value at the time the plan is established. Both Class B shares and Class C shares are subject to an ongoing service and distribution fee at a combined annual rate of up to 1.00% of the portfolio's average net assets attributable to its Class B or Class C shares. The ongoing distribution fees will cause these shares to have a higher expense ratio than that of Class A and Class I shares. IMDI uses the money that it receives from the deferred sales charge and the distribution fees to cover various promotional and sales related expenses, as well as expenses related to providing distributions services, such as compensating selected dealers and agents for selling these shares. Approximately eight years after the original date of purchase, your Class B shares will be converted automatically to Class A shares. Class A shares are subject to lower annual expenses than Class B shares. The conversion from Class B shares to Class A shares is not considered a taxable event for Federal income tax purposes. Class C shares do not have a similar conversion privilege. 9 201 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND - -------------------------------------------------------------------------------- CLASS I SHARES: Class I shares are offered only to institutions and certain individuals, and are not subject to an initial sales charge or a CDSC, nor to ongoing service or distribution fees. Class I shares also bear lower fees than Class A, Class B and Class C shares. - -- SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the end of this Prospectus. Enclose a check payable to Ivy International Fund. You should note on the check the class of shares you wish to purchase (see page 8 for minimum initial investments). Deliver your application materials to your registered representative or selling broker, or send them to one of the addresses below: - - BY REGULAR MAIL: Ivy Mackenzie Services Corp. PO Box 3022 Boca Raton, FL 33431-0922 - - BY COURIER: Ivy Mackenzie Services Corp. 700 South Federal Hwy., Ste. 300 Boca Raton, FL 33432-6114 - -- BUYING ADDITIONAL SHARES There are several ways to increase your investment in the Fund: - - BY MAIL: Send your check with a completed investment slip (attached to your account statement) or written instructions indicating the account registration, Fund number or name, and account number. Mail to one of the addresses above. - - THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. - - BY WIRE: Purchases may also be made by wiring money from your bank account to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call IMSC at 800.777.6472. Wiring instructions are as follows: First Union National Bank of Florida Jacksonville, FL ABA #063000021 Account #2090002063833 For further credit to: Your Account Registration Your Fund Number and Account Number - - BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Ivy International Fund account. Complete sections 6A and 7B of the Account Application. - -- HOW TO REDEEM SHARES SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your registered securities dealer or directly through IMSC. If you choose to redeem through your registered securities dealer, the dealer is responsible for properly transmitting redemption orders in a timely manner. If you choose to redeem directly through IMSC, you have several ways to submit your request: - - BY MAIL: Send your written redemption request to IMSC at one of the addresses on the left. Be sure that all registered owners listed on the account sign the request. Medallion signature guarantees and supporting legal documentation may be required. When you redeem, IMSC will normally send redemption proceeds to you on the next business day, but may take up to seven days (or longer in the case of shares recently purchased by check). - - BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or custodial account. To process your redemption order by telephone, you must have telephone redemption privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. - - BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds electronically drawn each month from your Ivy International Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. 10 202 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: - - BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. - - BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. - - BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. IMPORTANT REDEMPTION INFORMATION: - - A CDSC may apply to certain Class A share redemptions, to Class B shares redeemed within six years of purchase, and to Class C shares that are redeemed within one year of purchase. - - If you own shares of more than one class of the Fund, the Fund will redeem first the shares having the highest 12b-1 fees, unless you instruct otherwise. - - Any shares subject to a CDSC will be redeemed last unless you specifically elect otherwise. - - Shares will be redeemed in the order described under "Additional purchase information--Class B and Class C Shares". - - The Fund may (on 60 days' notice) redeem the accounts of shareholders whose investment, including sales charges paid, has been less than $1,000 for more than 12 months. - - The Fund may take up to seven days (or longer in the case of shares recently purchased by check) to send redemption proceeds. - - The Fund may make payment for redeemed shares in the form of securities of the Fund taken at current values. - -- HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of another Ivy fund, subject to certain restrictions (see "Important exchange information"). SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as follows: - - BY MAIL: Send your written exchange request to IMSC at one of the addresses on page 10 of this Prospectus. Be sure that all registered owners listed on the account sign the request. - - BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IMSC employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IMSC may be liable for any losses due to unauthorized or fraudulent telephone instructions. IMPORTANT EXCHANGE INFORMATION: - - You must exchange into the same share class you currently own. - -- Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - - It is the policy of the Fund to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Fund may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee (in the case of certain funds), or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. - -- DIVIDENDS, DISTRIBUTIONS AND TAXES - - The Fund generally declares and pays dividends and capital gain distributions (if any) at least once a year. - - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - - Reinvested dividends and distributions are added to your account at NAV and are not subject to a 11 203 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- IVY INTERNATIONAL FUND - -------------------------------------------------------------------------------- sales charge regardless of which share class you own. - - Cash dividends and distributions can be sent to you: - - BY MAIL: a check will be mailed to the address of record unless otherwise instructed. - - BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into your bank account. To change your dividend and/or distribution options, call IMSC at 800.777.6472. Dividends ordinarily will vary from one class of shares to another. The Fund intends to declare and pay dividends annually. The Fund will distribute net investment income and net realized capital gains, if any, at least once a year. The Fund may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of the Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of the Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, are taxable to you as long-term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Fund's manager may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, the manager does not generally manage the Fund to optimize tax efficiencies. If shares of the Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. In certain years, you may be able to claim a credit or deduction on your income tax return for your share of foreign taxes paid by the Fund. Upon the sale or exchange of your Fund shares, you may realize a capital gain or loss, which will be long term or short term, generally depending upon how long you held your shares. The Fund may be required to withhold U.S. Federal income tax at the rate of 31% of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Fund, including the status of distributions from the Fund under applicable state or local law. 12 204 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 13 205 [IVY LEAF LOGO] FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Fund's financial performance for the past five years, and reflects results for a single Fund share. The total returns in the table represent the rate an investor would have earned (or lost) each year on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by , whose report, along with the Fund's financial statements, is included in the Fund's Annual Report to shareholders (which is available upon request). - --------------------------------------------------------------------------------
CLASS A IVY INTERNATIONAL FUND -------------------------------------------------------------- for the year ended December 31, - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA -------------------------------------------------------------- Net asset value, beginning of period...................... $ 39.03 $ 35.89 $ 30.67 $ 27.60 -------------------------------------------------------------- Income from investment operations Net investment income................................... .37 .24 .20 .25 Net gains or losses on securities (both realized and unrealized)........................................... 2.50 3.47 5.85 3.22 -------------------------------------------------------------- Total from investment operations........................ 2.87 3.71 6.05 3.47 -------------------------------------------------------------- Less distributions Dividends from net investment income.................... .35 .21 .19 .25 Distributions From capital gains.................................... .22 .26 .64 .12 In excess of capital gains............................ .13 .10 -- .03 Returns of capital...................................... -- -- -- -- -------------------------------------------------------------- Total distributions................................... .70 .57 .83 .40 -------------------------------------------------------------- Net asset value, end of period............................ $ 41.20 $ 39.03 $ 35.89 $ 30.67 -------------------------------------------------------------- -------------------------------------------------------------- Total return (%).......................................... 7.34(a) 10.38(a) 19.72(a) 12.65(a) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................. $ 1,613,797 $1,705,772 $989,254 $475,989 Ratio of expenses to average net assets (%)............... 1.58 1.59 1.65 1.52 Ratio of net investment income to average net assets (%)..................................................... .83 .68 .76 .97 Portfolio turnover rate (%)............................... 15 8 14 6
- --------------------------------------------------------------------------------
CLASS B ------------------------------------------------------------------ for the year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 SELECTED PER SHARE DATA ------------------------------------------------------------------ Net asset value, beginning of period...................... $ $ 38.82 $ 35.73 $ 30.67 $ 27.60 ------------------------------------------------------------------ Income from investment operations Net investment (loss) income............................ -- (.06) (.01) .01 Net gains or losses on securities (both realized and unrealized)........................................... 2.50 3.44 5.76 3.20 ------------------------------------------------------------------ Total from investment operations........................ 2.50 3.38 5.75 3.21 ------------------------------------------------------------------ Less distributions Dividends From net investment income............................ -- -- -- .01 In excess of net investment income.................... -- -- .05 -- Distributions From capital gains.................................... .22 .21 .64 .10 In excess of capital gains............................ .13 .08 -- .03 Returns of capital...................................... -- -- -- -- ------------------------------------------------------------------ Total distributions................................... .35 .29 .69 .14 ------------------------------------------------------------------ Net asset value, end of period............................ $ $ 40.97 $ 38.82 $ 35.73 $ 30.67 ------------------------------------------------------------------ ------------------------------------------------------------------ Total return (%).......................................... 6.43(a) 9.46(a) 18.76(a) 11.62(a) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................. $ $ 542,997 $ 568,521 $312,161 $ 74,650 Ratio of expenses to average net assets (%)............... 2.41 2.42 2.45 2.44 Ratio of net investment (loss) income to average net assets (%).............................................. (.01) (.15) (.04) .05 Portfolio turnover rate (%)............................... 15 8 14 6
14 206 - ------------------------------------------------ CLASS C - ------------------------------------------------
for the period April 30, 1996 for the year ended (Commencement) December 31, to December 31, ------------------------------------------------------ 1999 1998 1997 1996 ------------------------------------------------------ $ $ 38.64 $ 35.58 $ 32.68 ------------------------------------------------------ -- (.05) -- 2.50 3.42 3.74 ------------------------------------------------------ 2.50 3.37 3.74 ------------------------------------------------------ -- .01 -- -- -- .20 .22 .21 .64 .13 .09 -- ------------------------------------------------------ .35 .31 .84 ------------------------------------------------------ $ $ 40.79 $ 38.64 $ 35.58 ------------------------------------------------------ ------------------------------------------------------ 6.46(a) 9.50(a) 11.45(b) $ $154,378 $174,880 $44,450 2.40 2.41 2.44(c) .01 (.14) (.03)(c) 15 8 14
- -------------------------------------------------------------------------------- CLASS I - -------------------------------------------------------------------------------- (a) Total return does not reflect a sales charge. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized - ----------------------------------------------------------------------
for the year ended December 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 ----------------------------------------------------- $ $ 39.06 $ 35.89 $ 30.67 $ 27.60 ----------------------------------------------------- .55 .32 .27 .30 2.48 3.56 5.88 3.22 ----------------------------------------------------- 3.03 3.88 6.15 3.52 ----------------------------------------------------- .53 .32 .27 .30 -- -- .02 -- .22 .28 .64 .12 .13 .11 -- .03 -- -- -- -- ----------------------------------------------------- .88 .71 .93 .45 ----------------------------------------------------- $ $ 41.21 $ 39.06 $ 35.89 $ 30.67 ----------------------------------------------------- ----------------------------------------------------- 7.75(a) 10.87(a) 20.06(a) 12.85(a) $ $156,999 $115,046 $53,344 $13,020 1.18 1.18 1.25 1.35 1.23 1.08 1.16 1.14 15 8 14 6
15 207 [IVY LEAF LOGO] - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 16 208 Account Application FUND USE ONLY ---------------------------- Account Number ---------------------------- Dealer/Branch/Rep ---------------------------- Account Type/Soc Cd [IVY FUNDS LOGO] Please mail this application along with your check to: Ivy Mackenzie Services Corp. P.O. Box 3022, Boca Raton, Florida 33431-0922 --------------------------------------------- This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. --------------------------------------------- 1 REGISTRATION Name ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- Address -------------------------------------------------------------------------------------------- City State Zip ----------------------------------------------------- ----------------- ---------------- Phone # (day) ( ) Phone # (evening) ( ) ----------------------------------- -------------------------------
-- Individual -- UGMA/UTMA -- Sole proprietor -- Joint tenant -- Corporation -- Trust -- Estate -- Partnership -- Other Date of trust -------------- --------------------------------- Minor's state of residence -----------------------
2 TAX I.D. Citizenship: U.S. Other (please specify): -- -- ------------------------------------------- Social security # - - or Tax identification # - --------------- -------------------------------------------
Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) Please see the "Dividends, distributions and taxes" section of the Prospectus for additional information on completing this section. 3 DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify IMSC of any purchases made under a Letter of Intent or Rights of Accumulation. Dealer name ------------------------------------------------------------- Branch office address --------------------------------------------------- City State Zip --------------------------------- ---------- -------------- Representative's name ---------------------------------------------------- Representative's # Representative's phone # ------------------- ----------- Authorized signature of dealer ------------------------------------------- 4 INVESTMENTS A. Enclosed is my check ($1,000 minimum) for $____________made payable to Ivy International Fund. Please invest it in: ----------------------------- Class A ----------------------------- Class B ----------------------------- Class C ----------------------------- Class I shares. B. I qualify for a reduction or elimination of the sales charge due to the following privilege (applies only to Class A shares): New Letter of Intent (if ROA or 90-day backdate privilege is ---applicable, provide account(s) information below.) ROA with the account(s) listed below. --- Existing Letter of Intent with the account(s) listed below. --- Fund name: Fund name: --------------------------------- --------------------------------- Account #: Account #: --------------------------------- ---------------------------------
If establishing a Letter of Intent, you will need to purchase Class A shares over a 13-month period in accordance with the provisions in the Prospectus. The aggregate amount of these purchases will be at least equal to the amount indicated below (see Prospectus for minimum amount required for reduced sales charges). $50,000 $100,000 $250,000 $500,000 --- --- --- --- C. FOR DEALER USE ONLY Confirmed trade orders: ------------------ ------------------ ------------------ Confirm Number Number of Shares Trade Date
209 5 DISTRIBUTION OPTIONS I would like to reinvest dividends and capital gains into additional shares in this account at net asset value unless a different option is checked below. A. --- Reinvest all dividends and capital gains into additional shares of the same class of a different Ivy fund account. Fund name: -------------------- Account #: -------------------- B. --- Pay all dividends in cash and reinvest capital gains into additional shares of the same class in this account or a different Ivy fund account. Fund name: -------------------- Account #: -------------------- C. --- Pay all dividends and capital gains in cash. I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN B OR C ABOVE, BE SENT TO: ----- the address listed in the registration ----- the special payee listed in Section 7A (by mail) ----- the special payee listed in Section 7B (by EFT) 6 OPTIONAL SPECIAL FEATURES A. AUTOMATIC INVESTMENT METHOD (AIM) --- I wish to have my bank account listed in section 7B automatically debited via EFT on a predetermined frequency and invested into my Ivy International Fund account listed below. 1. Withdraw $------------ for each time period indicated below and invest my bank proceeds into the following Ivy International Fund account: Share class: __ Class A __ Class B __ Class C Account #: -------------------- 2. Debit my bank account: --- Annually (on the --- day of the month of ----------------------). --- Semiannually (on the --- day of the months of --- and ---). --- Quarterly (on the --- day of the first/second/third month of each calendar quarter). (CIRCLE ONE) --- Monthly* --- once per month on the --- day --- twice per month on the ----- days --- 3 times per month on the ----- days --- 4 times per month on the ----- days B. SYSTEMATIC WITHDRAWAL PLANS (SWP)** --- I wish to have my Ivy International Fund account automatically debited on a predetermined frequency and the proceeds sent to me per my instructions below. 1. Withdraw ($50 minimum) $----- for each time period indicated below from the following Ivy International Fund account: Share class: __ Class A __ Class B __ Class C Account #: -------------------- 2. Withdraw from my Ivy International Fund account: --- Annually (on the ----- day of the month of ----------). ---Semiannually (on the ----- day of the months of ----- and -----). --- Quarterly (on the ----- day of the first/second/third month of each calendar quarter. (CIRCLE ONE) --- Monthly*--- once per month on the ---- day --- twice per month on the ---- days --- 3 times per month on the ---- days --- 4 times per month on the ---- days 3. I request the withdrawal proceeds be: --- sent to the address listed in the registration --- sent to the special payee listed in section 7A or 7B. --- invested into additional shares of the same class of a different Ivy fund: Fund name: -------------------- Account #: -------------------- Note: A minimum balance of $5,000 is required to establish a SWP. 6. OPTIONAL SPECIAL FEATURES (CONT.) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** --- yes --- no By checking "yes" immediately above, I authorize IMSC to honor telephone instructions for the redemption of Fund shares up to $50,000. Proceeds may be wire transferred to the bank account designated ($1,000 minimum). (COMPLETE SECTION 7B). D. TELEPHONE EXCHANGES** --- yes --- no By checking "yes" immediately above, I authorize exchanges by telephone among the Ivy funds upon instructions from any person as more fully described in the Prospectus. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone exchange privilege will be provided automatically. E. TELEPHONIC REDEMPTIONS** --- yes --- no By checking "yes" immediately above, the Fund or its agents are authorized to honor telephone instructions from any person as more fully described in the Prospectus for the redemption of Fund shares. The amount of the redemption shall not exceed $50,000 and the proceeds are to be payable to the shareholder of record and mailed to the address of record. To change this option once established, written instructions must be received from the shareholder of record or the current registered representative. If neither box is checked, the telephone redemption privilege will be provided automatically. * There must be a period of at least seven calendar days between each investment (AIM)/withdrawal (SWP) period. ** This option may not be used if shares are issued in certificate form. 7 SPECIAL PAYEE A. MAILING ADDRESS: Please send all disbursements to this payee: Name of bank or individual ----------------------------------------------- Account # (if applicable) ------------------------------------------------ Street ------------------------------------------------------------------- City ---------------------------- State ---------------------- Zip ----- B. FED WIRE/EFT INFORMATION Financial institution ---------------------------------------------------- ABA # -------------------------------------------------------------------- Account # ---------------------------------------------------------------- Street ------------------------------------------------------------------- City ---------------------------- State ---------------------- Zip ----- (PLEASE ATTACH A VOIDED CHECK.) 8 SIGNATURES Investors should be aware that the failure to check "No" under Section 6D or 6E above means that the Telephone Exchange/ Redemption Privileges will be provided. The Fund employs reasonable procedures that require personal identification prior to acting on exchange/redemption instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Please see "How to exchange shares" and "How to redeem shares" in the Prospectus for more information on these privileges. I certify to my legal capacity to purchase or redeem shares of the Fund for my own account or for the account of the organization named in Section 1. I have received a current Prospectus and understand its terms are incorporated in this application by reference. I am certifying my taxpayer information as stated in Section 2. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. ---------------------------------------- -------------------- Signature of Owner, Custodian, Trustee or Date Corporate Officer ---------------------------------------- -------------------- Signature of Joint Owner, Co-Trustee or Date Corporate Officer (Remember to sign Section 8) DETACH ON PERFORATION TO MAIL 210 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -- QUOTRON SYMBOLS AND CUSIP NUMBERS
- ---------------------------------------------------------------------------------------- CLASS SYMBOL CUSIP - ---------------------------------------------------------------------------------------- Ivy International Fund Class A IVINX 465903102 Ivy International Fund Class B IVIBX 465903201 Ivy International Fund Class C IVNCX 465897585 Ivy International Fund Class I IVIIX 465897874 - ----------------------------------------------------------------------------------------
211 (Ivy Funds Logo) -- HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND Additional information about the Fund and its investments is contained in the Fund's Statement of Additional Information dated ________, 2000 (the "SAI"), which is incorporated by reference into this Prospectus, and the Fund's annual and semiannual reports to shareholders. The Fund's annual report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its most recent fiscal year. The SAI and annual and semiannual reports are available upon request and without charge from the Distributor at the following address and phone number. Ivy Mackenzie Distributors, Inc. Via Mizner Financial Plaza 700 South Federal Highway, Ste. 300 Boca Raton, FL 33432 800.456.5111 Information about the Fund (including the SAI and annual and semiannual reports) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (please call 1-202-942-8090 for further details). Reports and other information about the Fund are also available on the EDGAR Database on the SEC's Internet Website (www.sec.gov), and copies of this information may be obtained, upon payment of a copying fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009. -- SHAREHOLDER INQUIRIES Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, regarding any other inquiries about the Fund at 1.800.777.6472, e-mail us at invest@ivymackenzie.com or visit our web site at www.ivymackenzie.com. Investment Company Act File No. 811-1028 01IIFXX0699 IVY ASIA PACIFIC FUND IVY CHINA REGION FUND IVY DEVELOPING NATIONS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL FUND II IVY INTERNATIONAL SMALL COMPANIES FUND IVY PAN-EUROPE FUND IVY SOUTH AMERICA FUND series of IVY FUND Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION May 1, 2000 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of twenty-one fully managed portfolios, each of which (except for Ivy South America Fund and Ivy International Strategic Bond Fund) is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B and C shares of Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Pan-Europe Fund and Ivy South America Fund, and to the Class A, B, C and I shares of Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, and Ivy International Small Companies Fund (each a "Fund"). The other ten portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds dated May 1, 2000 (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. The Funds also offer Advisor Class shares, which are described in a separate prospectus and SAI that may also be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 456-5111 INVESTMENT ADVISER (for Ivy Global Natural Resources Fund) Mackenzie Financial Corporation ("MFC") 150 Bloor Street West Suite 400 Toronto, Ontario CANADA M5S3B5 Telephone: (416) 922-5322 TABLE OF CONTENTS GENERAL INFORMATION..........................................................4 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................4 IVY EUROPEAN OPPORTUNITIES FUND.....................................4 INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND.........6 IVY GLOBAL FUND.....................................................8 INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND.........................9 IVY GLOBAL NATURAL RESOURCES FUND..................................11 INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND......11 IVY GLOBAL SCIENCE & TECHNOLOGY FUND...............................14 INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND...15 IVY INTERNATIONAL FUND II..........................................17 INVESTMENT RESTRICTIONS FOR........................................18 IVY INTERNATIONAL SMALL COMPANIES FUND.............................20 INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND..................................................21 IVY PAN-EUROPE FUND................................................23 INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND....................24 COMMON STOCKS......................................................26 CONVERTIBLE SECURITIES.............................................26 SMALL COMPANIES....................................................27 NATURAL RESOURCES AND PHYSICAL COMMODITIES.........................27 DEBT SECURITIES....................................................28 IN GENERAL................................................28 INVESTMENT-GRADE DEBT SECURITIES..........................28 LOW-RATED DEBT SECURITIES.................................29 U.S.GOVERNMENT SECURITIES.................................30 ZERO COUPON BONDS.........................................31 FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES...31 ILLIQUID SECURITIES................................................32 FOREIGN SECURITIES.................................................32 DEPOSITORY RECEIPTS................................................33 EMERGING MARKETS...................................................34 FOREIGN SOVEREIGN DEBT OBLIGATIONS........................35 BRADY BONDS...............................................36 FOREIGN CURRENCIES.................................................36 FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................37 OTHER INVESTMENT COMPANIES.........................................38 REPURCHASE AGREEMENTS..............................................38 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................38 COMMERCIAL PAPER...................................................39 BORROWING..........................................................39 WARRANTS...........................................................39 REAL ESTATE INVESTMENT TRUSTS (REITS)..............................39 OPTIONS TRANSACTIONS...............................................40 IN GENERAL................................................40 WRITING OPTIONS ON INDIVIDUAL SECURITIES..................41 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............41 RISKS OF OPTIONS TRANSACTIONS.............................42 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................43 IN GENERAL................................................43 FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS....44 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........45 SECURITIES INDEX FUTURES CONTRACTS.................................46 RISKS OF SECURITIES INDEX FUTURES.........................47 COMBINED TRANSACTIONS.....................................48 PORTFOLIO TURNOVER..........................................................48 TRUSTEES AND OFFICERS.......................................................48 PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...........................61 INVESTMENT ADVISORY AND OTHER SERVICES......................................61 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............61 DISTRIBUTION SERVICES..............................................64 RULE 18F-3 PLAN...........................................66 RULE 12B-1 DISTRIBUTION PLANS.............................66 CUSTODIAN..........................................................72 FUND ACCOUNTING SERVICES...........................................72 TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................73 ADMINISTRATOR......................................................73 AUDITORS...........................................................73 BROKERAGE ALLOCATION........................................................74 CAPITALIZATION AND VOTING RIGHTS............................................75 SPECIAL RIGHTS AND PRIVILEGES...............................................77 AUTOMATIC INVESTMENT METHOD........................................77 EXCHANGE OF SHARES.................................................77 INITIAL SALES CHARGE SHARES...............................77 CONTINGENT DEFERRED SALES CHARGE SHARES............................78 CLASS A...................................................78 CLASS B...................................................78 CLASS C...................................................79 CLASS I...................................................79 ALL CLASSES...............................................79 LETTER OF INTENT...................................................80 RETIREMENT PLANS...................................................80 INDIVIDUAL RETIREMENT ACCOUNTS............................81 ROTH IRAS.................................................82 QUALIFIED PLANS...........................................83 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....................84 SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..................84 SIMPLE PLANS..............................................84 REINVESTMENT PRIVILEGE.............................................84 RIGHTS OF ACCUMULATION.............................................85 SYSTEMATIC WITHDRAWAL PLAN.........................................85 GROUP SYSTEMATIC INVESTMENT PROGRAM................................86 REDEMPTIONS.................................................................87 CONVERSION OF CLASS B SHARES................................................88 NET ASSET VALUE.............................................................88 TAXATION 90 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............91 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............92 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................92 DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................93 DISTRIBUTIONS......................................................94 DISPOSITION OF SHARES..............................................94 FOREIGN WITHHOLDING TAXES..........................................95 BACKUP WITHHOLDING.................................................96 PERFORMANCE INFORMATION.....................................................96 AVERAGE ANNUAL TOTAL RETURN........................................96 CUMULATIVE TOTAL RETURN...........................................109 IVY GLOBAL FUND...................................................110 IVY GLOBAL NATURAL RESOURCES FUND.................................110 IVY GLOBAL SCIENCE & TECHNOLOGY FUND..............................111 IVY INTERNATIONAL FUND II.........................................112 IVY INTERNATIONAL SMALL COMPANIES FUND............................112 IVY PAN-EUROPE FUND...............................................113 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.............113 FINANCIAL STATEMENTS.......................................................114 APPENDIX A.................................................................115 GENERAL INFORMATION Each Fund other than Ivy South America Fund is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized is a Massachusetts business trust on December 21, 1983. Ivy South America Fund is organized as a separate, non-diversified portfolio of the Trust. Ivy Asia Pacific Fund commenced operations on January 1, 1997. Ivy China Region Fund commenced operations (Class A and Class B shares) on October 22, 1993; Class C commenced operations on April 30, 1996. Ivy Developing Nations Fund commenced operations (Class A and Class B shares) on November 1, 1994; Class C commenced operations on April 30, 1996. Ivy European Opportunities Fund commenced operations on May 3, 1999. Ivy Global Fund commenced operations (Class A shares) on April 18, 1991; Class B commenced operations on April 1, 1994; and Class C commenced operations on April 30, 1996. Ivy Global Natural Resources Fund and Ivy International Small Companies Fund commenced operations on January 1, 1997. Ivy Global Science & Technology Fund commenced operations on July 22, 1996. Ivy International Fund II and Ivy Pan-Europe Fund (Class A and Class B shares) commenced operations on May 13, 1997. Class C shares of Ivy Pan-Europe Fund were first issued on January 28, 1998. Ivy South America Fund commenced operations (Class A and Class B shares) on November 1, 1994; Class C commenced operations on April 30, 1996. Descriptions in this SAI of a particular investment practice or technique in which any Fund may engage or a financial instrument which any Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing each Fund's portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in a Fund's overall investment strategy, from time to time have a material impact on that Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund's asset level or other circumstances beyond a Fund's control, will not be considered a violation. IVY ASIA PACIFIC FUND The Fund's principal investment objective is long-term growth. Consideration of current income is secondary to this principal objective. Under normal circumstances the Fund invests at least 65% of its total assets in securities issued in Asia-Pacific countries, which for purposes of this SAI are defined to include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. Securities of Asia-Pacific issuers include: (a) securities of companies organized under the laws of an Asia-Pacific country or for which the principal securities trading market is in the Asia-Pacific region; (b) securities that are issued or guaranteed by the government of an Asia-Pacific country, its agencies or instrumentalities, political subdivisions or the country's central bank; (c) securities of a company, wherever organized, where at least 50% of the company's non-current assets, capitalization, gross revenue or profit in any one of the two most recent fiscal years represents (directly or indirectly through subsidiaries) assets or activities located in the Asia-Pacific region; and (d) any of the preceding types of securities in the form of depository shares. The Fund may participate in markets throughout the Asia-Pacific region, and it is expected that the Fund will be invested at all times in at least three Asia-Pacific countries. As a fundamental policy, the Fund does not concentrate its investments in any particular industry. The Fund may invest up to 35% of its assets in investment-grade debt securities of government or corporate issuers in emerging market countries, equity securities and investment grade debt securities of issuers in developed countries (including the United States), warrants, and cash or cash equivalents, such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive purposes, the Fund may invest without limit in such instruments. The Fund may also invest up to 5% of its net assets in zero coupon bonds, and in debt securities rated Ba or below by Moody's Investor Service, Inc. ("Moody's") or BB or below by Standard & Poor's Ratings Services ("S&P"), or if unrated, are considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, Ivy Asia Pacific Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies that invest in securities issued in Asia-Pacific countries in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. The Fund may write or buy straddles or spreads. For hedging purposes only, the Fund may engage in transactions in stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY ASIA PACIFIC FUND Ivy Asia Pacific Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (ii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (iv) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (v) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vi) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (vii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Asia Pacific Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (ii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that the Fund may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (iii) sell securities short, except for short sales "against the box"; (iv) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund" total assets; (v) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's investment adviser for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; or (vi) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures. IVY CHINA REGION FUND Ivy China Region Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. The Fund seeks to meet its objective primarily by investing in the equity securities of companies that are expected to benefit from the economic development and growth of China, Hong Kong and Taiwan. A significant percentage of the Fund's assets may also be invested in the securities markets of South Korea, Singapore, Malaysia, Thailand, Indonesia and the Philippines (collectively, with China, Hong Kong and Taiwan, the "China Region"). The Fund normally invests at least 65% of its total assets in "Greater China growth companies," defined as companies that (a) that are organized in or for which the principal securities trading markets are in the China Region; (b) that have at least 50% of their assets in one or more China Region countries or derive at least 50% of their gross sales revenues or profits from providing goods or services to or from within one or more China Region countries; or (c) that have at least 35% of their assets in China, Hong Kong or Taiwan, derive at least 35% of their gross sales revenues or profits from providing goods or services to or from within these three countries, or have significant manufacturing or other operations in these countries. IMI's determination as to whether a company qualifies as a Greater China growth company is based primarily on information contained in financial statements, reports, analyses and other pertinent information (some of which may be obtained directly from the company). The Fund may invest 25% or more of its total assets in the securities of issuers located in any one China Region country, and currently expects to invest more than 50% of its total assets in Hong Kong. The balance of the Fund's assets ordinarily are invested in (i) certain investment-grade debt securities and (ii) the equity securities of "China Region associated companies," which are companies that do not meet the definition of a Greater China growth company, but whose current or expected performance, based on certain identified factors (such as the growth trends in the location of a company's assets and the sources of its revenues and profits), is judged by IMI to be strongly associated with the China Region. The investment-grade debt securities in which the Fund may invest include (a) obligations of the U.S. Government or its agencies or instrumentalities, (b) obligations of U.S. banks and other banks organized and existing under the laws of Hong Kong, Taiwan or countries that are member of the Organization for Economic Cooperation and Development ("OECD"), (c) obligations denominated in any currency issued by international development institutions and Hong Kong, Taiwan and OECD member governments and their agencies and instrumentalities, and (d) corporate bonds rated Baa or higher by Moody's or BBB or higher by S&P (or if unrated, are considered by IMI to be of comparable quality), as well as repurchase agreements with respect to any of the foregoing instruments. The Fund may also invest in zero coupon bonds. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or, if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. Ivy China Region Fund may invest in sponsored or unsponsored ADRs, GDRs, ADSs, and GDSs, warrants, and securities issued on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. For temporary defensive purposes and during periods when IMI believes that circumstances warrant, the Fund may reduce its position in Greater China growth companies and Greater China associated companies and increase its investment in cash and liquid debt securities, such as U.S. Government securities, bank obligations, commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may also borrow up to 10% of the value of its total assets from banks. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in stock index futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY CHINA REGION FUND Ivy China Region Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval (as defined in the 1940 Act) of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy China Region Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (vii) purchase securities on margin; (viii) sell securities short; or (ix) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940. IVY DEVELOPING NATIONS FUND Ivy Developing Nations Fund's principal objective is long-term growth. Consideration of current income is secondary to this principal objective. In pursuing its objective, the Fund invests primarily in the equity securities of companies that IMI believes will benefit from the economic development and growth of emerging markets. The Fund considers countries having emerging markets to be those that (i) are generally considered to be "developing" or "emerging" by the World Bank and the International Finance Corporation, or (ii) are classified by the United Nations (or otherwise regarded by their authorities) as "emerging." Under normal market conditions, the Fund invests at least 65% of its total assets in equity securities (including common and preferred stocks, convertible debt obligations, warrants, options (subject to the restrictions set forth below), rights, and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs that are listed on stock exchanges or traded over-the-counter) of "Emerging Market growth companies," which are defined as companies (a) for which the principal securities trading market is an emerging market (as defined above), (b) that each (alone or on a consolidated basis) derives 50% or more of its total revenue either from goods, sales or services in emerging markets, or (c) that are organized under the laws of (and with a principal office in) an emerging market country. The Fund normally invests its assets in the securities of issuers located in at least three emerging market countries, and may invest 25% or more of its total assets in the securities of issuers located in any one country. IMI's determination as to whether a company qualifies as an Emerging Market growth company is based primarily on information contained in financial statements, reports, analyses and other pertinent information (some of which may be obtained directly from the company). For purposes of capital appreciation, Ivy Developing Nations Fund may invest up to 35% of its total assets in (i) debt securities of government or corporate issuers in emerging market countries, (ii) equity and debt securities of issuers in developed countries (including the United States), and (iii) cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive purposes, the Fund may invest without limit in such instruments. The Fund may also invest in zero coupon bonds and purchase securities on a "when-issued" or firm commitment basis. The Fund will not invest more than 20% of its total assets in debt securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, the Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY DEVELOPING NATIONS FUND Ivy Developing Nations Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Unless otherwise indicated, Ivy Developing Nations Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; (vii) purchase securities on margin; (viii) sell securities short; or (ix) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act a brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940. Under the 1940 Act, the Fund is permitted, subject to the above investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restrictions (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY EUROPEAN OPPORTUNITIES FUND The Fund's investment objective is long-term capital growth by investing in the securities markets of Europe. The Fund's subadviser, Henderson Investment Management Limited ("Henderson Investors"), will invest the Fund's assets in the securities of European companies, including those companies operating in the emerging markets of Europe and small capitalization companies operating in the developed markets of Europe. The Fund may also invest in larger capitalization European companies and European companies which have been subject to special circumstances, e.g., privatized companies or companies which provide exceptional value. Although the majority of the Fund's assets will be invested in equity securities, the Fund may also invest in cash, short-term or long-term fixed income securities issued by corporations and governments of Europe if considered appropriate in relation to the then current economic or market conditions in any country. The Fund seeks to achieve its investment objective by investing primarily in the equity securities of companies domiciled or otherwise doing business (as described below) in European countries. Under normal circumstances, the Fund will invest at least 65% of its total assets in the equity securities of "European companies," which include any issuer (a) that is organized under the laws of a European country; (b) that derives 50% or more of its total revenues from goods produced or sold, investments made or services performed in Europe; or (c) for which the principal trading market is in Europe. The equity securities in which the Fund may invest include common stock, preferred stock and common stock equivalents such as warrants and convertible debt securities. These may include securities issued pursuant to initial public offerings ("IPOs"). The Fund may engage in short-term trading. The Fund may also invest in sponsored or unsponsored American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs"), European Depository Shares ("EDSs") and Global Depository Shares ("GDSs"). The Fund does not expect to concentrate its investments in any particular industry. The Fund may invest up to 35% of its net assets in debt securities, but will not invest more than 20% of its net assets in debt securities rated Ba or below by Moody's Investors Service, Inc. ("Moody's") or BB or below by Standard & Poor's Ratings Services ("S&P") or, if unrated, considered by Henderson Investors to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may purchase Brady Bonds and other sovereign debt of countries that have restructured or are in the process of restructuring their sovereign debt. The Fund may also purchase securities on a "when-issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. In addition, the Fund may invest up to 5% of its net assets in zero coupon bonds. For temporary defensive purposes or when Henderson Investors believes that circumstances warrant, the Fund may invest without limit in U.S. Government securities, investment grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P or, if unrated, considered by Henderson Investors to be of comparable quality), warrants, and cash or cash equivalents such as domestic or foreign bank obligations (including certificates of deposit, time deposits and bankers' acceptances), short-term notes, repurchase agreements, and domestic or foreign commercial paper. The Fund may borrow money in accordance with the provisions of the 1940 Act. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. For hedging purposes, the Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index, interest rate and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND Ivy European Opportunities Fund's investment objective, as set forth in the Prospectus under "Investment Objective and Policies," and the investment restrictions set forth below are fundamental policies of the Fund and may not be changed with respect to the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy European Opportunities Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in the subadviser's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market or to other factors, is liquid; (ii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (iii) purchase or sell real estate limited partnership interests; (iv) sell securities short, except for short sales "against the box"; (v) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's subadviser, for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (vi) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; (vii) make investments in securities for the purpose of exercising control over or management of the issuer; or (viii) invest in interests in oil, gas and/or mineral exploration or development programs (other than securities of companies that invest in or sponsor such programs). IVY GLOBAL FUND Ivy Global Fund seeks long-term capital growth through a flexible policy of investing in stocks and debt obligations of companies and governments of any nation. Any income realized will be incidental. Under normal conditions, the Fund will invest at least 65% of its total assets in the common stock of companies throughout the world, with at least three different countries (one of which may be the United States) represented in the Fund's overall portfolio holdings. Although the Fund generally invests in common stock, it may also invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, and investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), including corporate bonds, notes, debentures, convertible bonds and zero coupon bonds. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may invest in equity real estate investment trusts, warrants, and securities issued on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. The Fund may not invest more than 5% of its total assets in restricted securities. For temporary defensive purposes and during periods when IMI believes that circumstances warrant, Ivy Global Fund may invest without limit in U.S. Government securities, obligations issued by domestic or foreign banks (including certificates of deposit, time deposits and bankers' acceptances), and domestic or foreign commercial paper (which, if issued by a corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company that at the time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase agreements, and, for temporary or emergency purposes, may borrow up to 10% of the value of its total assets from banks. The Fund may purchase put and call options on stock indices, provided the premium paid for such options does not exceed 10% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 50% of the value of its net assets, and may write covered call options so long as not more than 20% of the Fund's net assets is subject to being purchased upon the exercise of the calls. The Fund may also write and buy straddles and spreads. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 20% of its total assets. INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND Ivy Global Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by its Prospectus. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Global Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas or mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; (v) make investments in securities for the purpose of exercising control over or management of the issuer; (vi) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Manager for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (vii) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for extraordinary or emergency purposes. All borrowings will be repaid before any additional investments are made; (viii) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities restricted as to disposition under the Federal securities laws; or (ix) purchase securities of another investment company, except in connection with a merger, consolidation, reorganization or acquisition of assets, and except that the Fund may invest in securities of other investment companies subject to the restrictions in Section 12(d)(1) of the Investment Company Act of 1940 (the "1940 Act"). The Fund does not interpret fundamental restriction (v) to prohibit investment in real estate investment trusts. IVY GLOBAL NATURAL RESOURCES FUND Ivy Global Natural Resources Fund's investment objective is long-term growth. Any income realized will be incidental. Under normal conditions, the Fund invests at least 65% of its total assets in the equity securities of companies throughout the world that own, explore or develop natural resources and other basic commodities, or supply goods and services to such companies. Under this investment policy, at least three different countries (one of which may be the United States) will be represented in the Fund's overall portfolio holdings. "Natural resources" generally include precious metals (such as gold, silver and platinum), ferrous and nonferrous metals (such as iron, aluminum and copper), strategic metals (such as uranium and titanium), coal, oil, natural gases, timber, undeveloped real property and agricultural commodities. Although the Fund generally invests in common stock, it may also invest in preferred stock, securities convertible into common stock and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs. The Fund may also invest directly in precious metals and other physical commodities. In selecting the Fund's investments, MFC will seek to identify securities of companies that, in MFC's opinion, appear to be undervalued relative to the value of the companies' natural resource holdings. MFC believes that certain political and economic changes in the global environment in recent years have had and will continue to have a profound effect on global supply and demand of natural resources, and that rising demand from developing markets and new sources of supply should create attractive investment opportunities. In selecting the Fund's investments, MFC will seek to identify securities of companies that, in MFC's opinion, appear to be undervalued relative to the value of the companies' natural resource holdings. For temporary defensive purposes, Ivy Global Natural Resources Fund may invest without limit in cash or cash equivalents, such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. For hedging purposes only, the Fund may engage in transactions in (and options on) foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy puts, calls, straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND Ivy Global Natural Resources Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in (a) commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI and (b) commodities relating to natural resources, as described in the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Global Natural Resources Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (ii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the 1940 Act and rules thereunder; (iii) purchase or sell interests in oil, gas or mineral leases (other than securities of companies that invest in or sponsor such programs); (iv) invest in interests in oil, gas and/or mineral exploration or development programs; (v) sell securities short, except for short sales "against the box;" (vi) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund" total assets; (vii) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's investment adviser for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (viii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; or (ix) make investments in securities for the purpose of exercising control over or management of the issuer. Under the 1940 Act, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY GLOBAL SCIENCE & TECHNOLOGY FUND Ivy Global Science & Technology Fund's principal investment objective is long-term capital growth. Any income realized will be incidental. Under normal conditions, the Fund will invest at least 65% of its total assets in the common stock of companies that are expected to benefit from the development, advancement and use of science and technology. Under this investment policy, at least three different countries (one of which may be the United States) will be represented in the Fund's overall portfolio holdings. Industries likely to be represented in the Fund's portfolio include computers and peripheral products, software, electronic components and systems, telecommunications, media and information services, pharmaceuticals, hospital supply and medical devices, biotechnology, environmental services, chemicals and synthetic materials, and defense and aerospace. The Fund may also invest in companies that are expected to benefit indirectly from the commercialization of technological and scientific advances. In recent years, rapid advances in these industries have stimulated unprecedented growth. While this is no guarantee of future performance, IMI believes that these industries offer substantial opportunities for long-term capital appreciation. Investments made by the Fund may include securities issued pursuant to IPOs. The Fund may also engage in short-term trading. Although the Fund generally invests in common stock, it may also invest in preferred stock, securities convertible into common stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), including corporate bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may also invest up to 5% of its net assets in debt securities that are rated Ba or below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may invest in warrants, purchase securities on a "when-issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest (i) in other investment companies in accordance with the provisions of the 1940 Act and (ii) up to 15% of its net assets in illiquid securities. For temporary defensive purposes and during periods when IMI believes that circumstances warrant, Ivy Global Science & Technology Fund may invest without limit in U.S. Government securities, obligations issued by domestic or foreign banks (including certificates of deposit, time deposits and bankers' acceptances), and domestic or foreign commercial paper (which, if issued by a corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company that at the time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase agreements, and, for temporary or emergency purposes, may borrow up to 10% of the value of its total assets from banks. The Fund may purchase put and call options on stock indices and on individual securities, provided the premium paid for such options does not exceed 10% of the value of the Fund's net assets. The Fund may also sell covered put options with respect to up to 50% of the value of its net assets, and may write covered call options so long as not more than 20% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 20% of the value of its total assets. INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND Ivy Global Science & Technology Fund's investment objective, as set forth in the "Summary" section of the Prospectus, and the investment restrictions set forth below are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the Fund's outstanding voting shares. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Global Science & Technology Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control or management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that a Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (v) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for emergency purposes. (vi) purchase securities on margin; (vii) sell securities short, except for short sales "against the box"; or (viii) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act. Under the 1940 Act, the Fund is permitted, subject to the above investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY INTERNATIONAL FUND II Ivy International Fund II's principal objective is long-term capital growth primarily through investment in equity securities. Consideration of current income is secondary to this principal objective. It is anticipated that at least 65% of the Fund's total assets will be invested in common stocks (and securities convertible into common stocks) principally traded in European, Pacific Basin and Latin American markets. Under this investment policy, at least three different countries (other than the United States) will be represented in the Fund's overall portfolio holdings. For temporary defensive purposes, the Fund may also invest in equity securities principally traded in U.S. markets. IMI, the Fund's investment manager, invests the Fund's assets in a variety of economic sectors, industry segments and individual securities in order to reduce the effects of price volatility in any one area and to enable shareholders to participate in markets that do not necessarily move in concert with U.S. markets. IMI seeks to identify rapidly expanding foreign economies, and then searches out growing industries and corporations, focusing on companies with established records. Individual securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. Companies in which investments are made will generally have at least $1 billion in capitalization and a solid history of operations. When economic or market conditions warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), preferred stocks, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may borrow up to 10% of the value of its total assets from banks. The Fund may also purchase securities on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL FUND II Ivy International Fund II's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy International Fund II has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) sell securities short, except for short sales, "against the box;" (v) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for emergency purposes. (vi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940; (vii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; or (viii) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidations. Ivy International Fund II will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. Under the Investment Company Act of 1940, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. IVY INTERNATIONAL SMALL COMPANIES FUND Ivy International Small Companies Fund's principal investment objective is long-term growth primarily through investment in foreign equity securities. Consideration of current income is secondary to this principal objective. Under normal circumstances the Fund invests at least 65% of its total assets in common and preferred stocks (and securities convertible into common stocks) of foreign issuers having total market capitalization of less than $1 billion. Under this investment policy, at least three different countries (other than the United States) will be represented in the Fund's overall portfolio holdings. For temporary defensive purposes, the Fund may also invest in equity securities principally traded in the United States. The Fund will invest its assets in a variety of economic sectors, industry segments and individual securities in order to reduce the effects of price volatility in any area and to enable shareholders to participate in markets that do not necessarily move in concert with the U.S. market. The factors that IMI considers in determining the appropriate distribution of investments among various countries and regions include prospects for relative economic growth, expected levels of inflation, government policies influencing business conditions and the outlook for currency relationships. The Fund may purchase securities issued pursuant to IPOs. The Fund may engage in short-term trading. In selecting the Fund's investments, IMI will seek to identify securities that are attractively priced relative to their intrinsic value. The intrinsic value of a particular security is analyzed by reference to characteristics such as relative price-earnings ratio, dividend yield and other relevant factors (such as applicable financial, tax, social and political conditions). When economic or market conditions warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities, zero coupon bonds, preferred stocks, warrants, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may also invest up to 5% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, Ivy International Small Companies Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND Ivy International Small Companies Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy International Small Companies Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (v) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; (vi) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that the Fund may purchase shares of other investment companies subject to such restrictions as may be imposed by the 1940 Act and rules thereunder; (vii) sell securities short, except for short sales "against the box;" (viii) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's investment adviser for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (ix) make investments in securities for the purpose of exercising control over or management of the issuer; or (x) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures. IVY PAN-EUROPE FUND Ivy Pan-Europe Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. The Fund seeks to achieve its investment objective by investing primarily in the equity securities of companies domiciled or otherwise doing business (as described below) in European countries. Under normal circumstances, the Fund will invest at least 65% of its total assets in the equity securities of "European companies," which include any issuer (a) that is organized under the laws of a European country; (b) that derives 50% or more of its total revenues from goods produced or sold, investments made or services performed in Europe; or (c) for which the principal trading market is in Europe. The Fund may also invest up to 35% of its total assets in the equity securities of issuers domiciled outside of Europe. The equity securities in which the Fund may invest include common stock, preferred stock and common stock equivalents such as warrants and convertible debt securities. The Fund may also invest in sponsored or unsponsored ADRs, European Depository Receipts ("EDRs"), GDRs, ADSs, European Depository Shares ("EDSs") and GDSs. As a fundamental policy, the Fund does not concentrate its investments in any particular industry. The Fund may invest up to 35% of its net assets in debt securities, but will not invest more than 20% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may also purchase securities on a "when issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. In addition, the Fund may invest up to 5% of its net assets in zero coupon bonds. For temporary defensive purposes or when IMI believes that circumstances warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), warrants, and cash or cash equivalents such as domestic or foreign bank obligations (including certificates of deposit, time deposits and bankers' acceptances), short-term notes, repurchase agreements, and domestic or foreign commercial paper (which, if issued by a corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company that at the time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P). For temporary or emergency purposes, Ivy Pan-Europe Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND Ivy Pan-Europe Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: The Fund has elected to be classified as a diversified series of an open-end investment company. (i) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (ii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (iv) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (v) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vi) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (vii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Pan-Europe Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (v) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; (vi) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (vii) sell securities short, except for short sales "against the box"; (viii) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of IMI, for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (ix) make investments in securities for the purpose of exercising control over or management of the issuer; or (x) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures. IVY SOUTH AMERICA FUND Ivy South America Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. Under normal conditions the Fund invests at least 65% of its total assets in securities issued in South America. Securities of South American issuers include (a) securities of companies organized under the laws of a South American country or for which the principal securities trading market is in South America; (b) securities that are issued or guaranteed by the government of a South American country, its agencies or instrumentalities, political subdivisions or the country's central bank; (c) securities of a company, wherever organized, where at least 50% of the company's non-current assets, capitalization, gross revenue or profit in any one of the two most recent fiscal years represents (directly or indirectly through subsidiaries) assets or activities located in South America; or (d) any of the preceding types of securities in the form of depository shares. The Fund may participate, however, in markets throughout Latin America, which for purposes of this SAI is defined as Central America, South America and the Spanish-speaking islands of the Caribbean, and it is expected that the Fund will be invested at all times in at least three countries. Under present conditions, the Fund expects to focus its investments in Argentina, Brazil, Chile, Columbia, Peru and Venezuela, which IMI believes are the most developed capital markets in South America. As a fundamental restriction, the Fund will not concentrate its investments in any particular industry. The Fund's equity investments consist of common stock, preferred stock (either convertible or non-convertible), sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, and warrants (any of which may be purchased through rights). The Fund's equity securities may be listed on securities exchanges, traded over-the-counter, or have no organized market. The Fund may invest in debt securities (including zero coupon bonds) when IMI anticipates that the potential for capital appreciation from debt securities is likely to equal or exceed that of equity securities (e.g., a favorable change in relative foreign exchange rates, interest rate levels or the creditworthiness of issuers). These include debt securities issued by South American Governments ("Sovereign Debt"). Most of the debt securities in which the Fund may invest are not rated, and those that are rated are expected to be below investment-grade (i.e., rated Ba or below by Moody's or BB or below by S&P, or considered by IMI to be of comparable quality), and are commonly referred to as "high yield" or "junk" bonds. To meet redemptions, or while the Fund is anticipating investments in South American securities, the Fund may hold cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive or emergency purposes, the Fund may (i) invest without limitation in such instruments, and (ii) borrow from banks in accordance with the provisions of the 1940 Act (but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets). Ivy South America Fund may purchase securities on a "when-issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. The Fund will treat as illiquid any South American securities that are subject to restrictions on repatriation for more than seven days, as well as any securities issued in connection with South American debt conversion programs that are restricted to remittance of invested capital or profits. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY SOUTH AMERICA FUND Ivy South America Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy South America Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund" total assets; (vi) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vii) purchase securities on margin; (viii) sell securities short; or (ix) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund) but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which each Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stock changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock, although typically not as much as the price of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. SMALL COMPANIES Investing in smaller company stocks involves certain special considerations and risks that are not usually associated with investing in larger, more established companies. For example, the securities of small or new companies may be subject to more abrupt or erratic market movements because they tend to be thinly traded and are subject to a greater degree to changes in the issuer's earnings and prospects. Small companies also tend to have limited product lines, markets or financial resources. Transaction costs in smaller company stocks also may be higher than those of larger companies. INITIAL PUBLIC OFFERINGS Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. A Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is limited, so it is likely that IPO securities will represent a smaller component of a Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). NATURAL RESOURCES AND PHYSICAL COMMODITIES Since Ivy Global Natural Resources Fund normally invests a substantial portion of its assets in securities of companies engaged in natural resources activities, that Fund may be subject to greater risks and market fluctuations than funds with more diversified portfolios. The value of the Fund's securities will fluctuate in response to market conditions generally, and will be particularly sensitive to the markets for those natural resources in which a particular issuer is involved. The values of natural resources may also fluctuate directly with respect to real and perceived inflationary trends and various political developments. In selecting the Fund's portfolio of investments, MFC will consider each company's ability to create new products, secure any necessary regulatory approvals, and generate sufficient customer demand. A company's failure to perform well in any one of these areas, however, could cause its stock to decline sharply. Natural resource industries throughout the world may be subject to greater political, environmental and other governmental regulation than many other industries. Changes in governmental policies and the need for regulatory approvals may have an adverse effect on the products and services of natural resources companies. For example, the exploration, development and distribution of coal, oil and gas in the United States are subject to significant Federal and state regulation, which may affect rates of return on such investments and the kinds of services that may be offered to companies in those industries. In addition, many natural resource companies have been subject to significant costs associated with compliance with environmental and other safety regulations. Such regulations may also hamper the development of new technologies. The direction, type or effect of any future regulations affecting natural resource industries are virtually impossible to predict. Ivy Global Natural Resources Fund's investments in precious metals (such as gold) and other physical commodities are considered speculative and subject to special risk considerations, including substantial price fluctuations over short periods of time. On the other hand, investments in precious metals coins or bullion could help to moderate fluctuations in the value of the Fund's portfolio, since the prices of precious metals have at times tended not to fluctuate as widely as shares of issuers engaged in the mining of precious metals. Because precious metals and other commodities do not generate investment income, however, the return on such investments will be derived solely from the appreciation and depreciation on such investments. The Fund may also incur storage and other costs relating to its investments in precious metals and other commodities, which may, under certain circumstances, exceed custodial and brokerage costs associated with investments in other types of securities. When the Fund purchases a precious metal, MFC currently intends that it will only be in a form that is readily marketable. Under current U.S. tax law, the Fund may not receive more than 10% of its yearly income from gains resulting from selling precious metals or any other physical commodity. Accordingly, the Fund may be required to hold its precious metals or sell them at a loss, or to sell its portfolio securities at a gain, when for investment reasons it would not otherwise do so. DEBT SECURITIES IN GENERAL Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). Each Fund may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or BBB by S&P, and comparable unrated securities (commonly referred to as "high yield" or "junk" bonds), including many emerging markets bonds, are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The lower the ratings of corporate debt securities, the more their risks render them like equity securities. Such securities carry a high degree of risk (including the possibility of default or bankruptcy of the issuers of such securities), and generally involve greater volatility of price and risk of principal and income (and may be less liquid) than securities in the higher rating categories. (See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics.) Lower rated and unrated securities are especially subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. During an economic downturn or period of rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to service their principal and interest payment obligations. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. Changes in interest rates may have a less direct or dominant impact on high yield bonds than on higher quality issues of similar maturities. However, the price of high yield bonds can change significantly or suddenly due to a host of factors including changes in interest rates, fundamental credit quality, market psychology, government regulations, U.S. economic growth and, at times, stock market activity. High yield bonds may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, a Fund may have to replace the security with a lower yielding security. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market or because of a decline in the value of such securities. A thin trading market may limit the ability of each Fund to accurately value high yield securities in the Fund's portfolio, could adversely affect the price at which a Fund could sell such securities, and cause large fluctuations in the daily net asset value of a Fund's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of low-rated debt securities, especially in a thinly traded market. When secondary markets for high yield securities become relatively less liquid, it may be more difficult to value the securities, requiring additional research and elements of judgment. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high yield securities market can change suddenly and unexpectedly, and even recently issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. For these reasons, it is the policy of IMI not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of each Fund's investment objectives by investment in such securities may be more dependent on IMI's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the best interest of each Fund to retain or dispose of such security. However, should any individual bond held by any Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. Prices for high yield securities may be affected by legislative and regulatory developments. For example, Federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, Congress has from time to time considered legislation that would restrict or eliminate the corporate tax deduction for interest payments in these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayments, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain Federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association, and Student Loan Marketing Association. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in a Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to each Fund on a current basis, but is in effect compounded, the value of the securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of certain debt securities are often offered on a "when-issued" basis, meaning the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the date of the commitment to purchase. Firm commitment agreements call for the purchase of securities at an agreed-upon price on a specified future date. The Fund uses such investment techniques in order to secure what is considered to be an advantageous price and yield to the Fund and not for purposes of leveraging the Fund's assets. In either instance, the Fund will maintain in a segregated account with its Custodian cash or liquid securities equal (on a daily marked-to-market basis) to the amount of its commitment to purchase the underlying securities. ILLIQUID SECURITIES Each Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of each Fund. It is each Fund's policy that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between a Fund's decision to sell a restricted or illiquid security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, a Fund may be required to bear all or part of the registration expenses. Each Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which each Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and related depository instruments, American Depository Shares ("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in each Fund's domestic investments. Although IMI intends to invest each Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which each Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, each Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. It may be more difficult for each Fund's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the United States and foreign countries may be less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. IMI seeks to mitigate the risks to each Fund associated with the foregoing considerations through investment variation and continuous professional management. DEPOSITORY RECEIPTS ADRs, GDRs, ADSs, GDSs and related securities are depository instruments, the issuance of which is typically administered by a U.S. or foreign bank or trust company. These instruments evidence ownership of underlying securities issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges or over-the-counter ("OTC") in the United States. Unsponsored programs are organized independently and without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. EMERGING MARKETS Each Fund could have significant investments in securities traded in emerging markets. Investors should recognize that investing in such countries involves special considerations, in addition to those set forth above, that are not typically associated with investing in United States securities and that may affect each Fund's performance favorably or unfavorably. In recent years, many emerging market countries around the world have undergone political changes that have reduced government's role in economic and personal affairs and have stimulated investment and growth. Historically, there is a strong direct correlation between economic growth and stock market returns. While this is no guarantee of future performance, IMI believes that investment opportunities (particularly in the energy, environmental services, natural resources, basic materials, power, telecommunications and transportation industries) may result within the evolving economies of emerging market countries from which each Fund and its shareholders will benefit. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. Such risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies that may restrict each Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until relatively recently in certain Eastern European countries, of a capital market structure or market-oriented economy; (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries; and (viii) the possibility that currency devaluations could adversely affect the value of each Fund's investments. Further, many emerging markets have experienced and continue to experience high rates of inflation. Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, each Fund could lose a substantial portion of any investments it has made in the affected countries. Further, few (if any) accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial in relation to the actual market values and may be adverse to each Fund's net asset value. Certain Eastern European countries that do not have well-established trading markets are characterized by an absence of developed legal structures governing private and foreign investments and private property. In addition, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of each Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of each Fund's cash and securities, each Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES Certain Asia-Pacific countries in which Ivy Asia Pacific Fund is likely to invest are developing countries, and may be in the initial stages of their industrialization cycle. The economic structures of developing countries generally are less diverse and mature than in the United States, and their political systems may be relatively unstable. Historically, markets of developing countries have been more volatile than the markets of developed countries, yet such markets often have provided higher rates of return to investors. Investing in securities of issuers in Asia-Pacific countries involves certain considerations not typically associated with investing in securities issued in the United States or in other developed countries, including (i) restrictions on foreign investment and on repatriation of capital invested in Asian countries, (ii) currency fluctuations, (iii) the cost of converting foreign currency into United States dollars, (iv) potential price volatility and lesser liquidity of shares traded on Asia-Pacific securities markets and (v) political and economic risks, including the risk of nationalization or expropriation of assets and the risk of war. Certain Asia-Pacific countries may be more vulnerable to the ebb and flow of international trade and to trade barriers and other protectionist or retaliatory measures. Investments in countries that have recently opened their capital markets and that appear to have relaxed their central planning requirement, as well as in countries that have privatized some of their state-owned industries, should be regarded as speculative. The settlement period of securities transactions in foreign markets in general may be longer than in domestic markets, and such delays may be of particular concern in developing countries. For example, the possibility of political upheaval and the dependence on foreign economic assistance may be greater in developing countries than in developed countries, either one of which may increase settlement delays. Securities exchanges, issuers and broker-dealers in some Asia-Pacific countries are subject to less regulatory scrutiny than in the United States. In addition, due to the limited size of the markets for Asia-Pacific securities, the prices for such securities may be more vulnerable to adverse publicity, investors' perceptions or traders' positions or strategies, which could cause a decrease not only in the value but also in the liquidity of the Fund's investments. THE CHINA REGION Investors in Ivy China Region Fund should be aware that many of the China Region countries in which the Fund is likely to invest may be subject to a greater degree of economic, political and social instability than is the case in the United States or other developed countries. Among the factors causing this instability are (i) authoritarian governments or military involvement in political and economic decision making, (ii) popular unrest associated with demands for improved political, economic and social conditions, (iii) internal insurgencies, (iv) hostile relations with neighboring countries, (v) ethnic, religious and racial disaffection, and (vi) changes in trading status, any one of which could disrupt the principal financial markets in which the Ivy China Region Fund invests and adversely affect the value of its assets. China Region countries tend to be heavily dependent on international trade, as a result of which their markets are highly sensitive to protective trade barriers and the economic conditions of their principal trading partners (i.e., the United States, Japan and Western European countries). Protectionist trade legislation, reduction of foreign investment in China Region economies and general declines in the international securities markets could have a significant adverse effect on the China Region securities markets. In addition, certain China Region countries have in the past failed to recognize private property rights and have at times nationalized or expropriated the assets of private companies. There is a heightened risk in these countries that such adverse actions might be repeated. To the extent that any China Region country experiences rapid increases in its money supply or investment in equity securities for speculative purposes, the equity securities traded in such countries may trade at price-earning multiples higher than those of comparable companies trading on securities markets in the United States, which may not be sustainable. Finally, restrictions on foreign investment exists to varying degrees in some China Region countries. Where such restrictions apply, investments may be limited and may increase the Fund's expenses. SOUTH AMERICAN SECURITIES. Investors in Ivy South America Fund should be aware that investing in the securities of South American issuers may entail risks relating to the potential political and economic instability of certain South American countries and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment and on repatriation of capital invested. In the event of expropriation, nationalization or other confiscation by any country, the Fund could lose its entire investment in any such country. The securities markets of South American countries are substantially smaller, less developed, less liquid and more volatile than the major securities markets in the U.S. Disclosure and regulatory standards are in many respects less stringent than U.S. standards. Furthermore, there is a lower level of monitoring and regulation of the markets and the activities of investors in such markets. The limited size of many South American securities markets and limited trading volume in the securities of South American issuers compared to volume of trading in the securities of U.S. issuers could cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example, limited market size may cause prices to be unduly influenced by traders who control large positions. Adverse publicity and investors' perceptions, whether or not based on in-depth fundamental analysis, may decrease the value and liquidity of portfolio securities. The Fund invests in securities denominated in currencies of South American countries. Accordingly, changes in the value of these currencies against the U.S. dollar will result in corresponding changes in the U.S. dollar value of the Fund's assets denominated in those currencies. Some South American countries also may have managed currencies, which are not free floating against the U.S. dollar. In addition, there is risk that certain South American countries may restrict the free conversion of their currencies into other countries. Further, certain South American currencies may not be internationally traded. Certain of these currencies have experienced a steep devaluation relative to the U.S. dollar. Any devaluations in the currencies in which the Fund's portfolio securities are denominated may have a detrimental impact on the Fund's net asset value. The economies of individual South American countries may differ favorably or unfavorably from the U.S. economy in such respects as the rate of growth of gross domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Certain South American countries have experienced high levels of inflation which can have a debilitating effect on the economy. Furthermore, certain South American countries may impose withholding taxes on dividends payable to a Fund at a higher rate than those imposed by other foreign countries. This may reduce the Fund's investment income available for distribution to shareholders. Certain South American countries such as Argentina and Brazil are among the world's largest debtors to commercial banks and foreign governments. At times, certain South American countries have declared moratoria on the payment of principal and/or interest on outstanding debt. Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service its debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which defaulted sovereign debt may be collected in whole or in part. Governments of many South American countries have exercised and continue to exercise substantial influence over many aspects of the private sector through the ownership or control of many companies, including some of the largest in those countries. As a result, government actions in the future could have a significant effect on economic conditions which may adversely affect prices of certain portfolio securities. Expropriation, confiscatory taxation, nationalization, political, economic or social instability or other similar developments, such as military coups, have occurred in the past and could also adversely affect a Fund's investments in this region. Changes in political leadership, the implementation of market oriented economic policies, such as privatization, trade reform and fiscal and monetary reform are among the recent steps taken to renew economic growth. External debt is being restructured and flight capital (domestic capital that has left home country) has begun to return. Inflation control efforts have also been implemented. South American equity markets can be extremely volatile and in the past have shown little correlation with the U.S. market. Currencies are typically weak, but most are now relatively free floating, and it is not unusual for the currencies to undergo wide fluctuations in value over short periods of time due to changes in the market. FOREIGN SOVEREIGN DEBT OBLIGATIONS Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service its debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part. BRADY BONDS Ivy European Opportunities Fund may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela. Brady Bonds have been issued only recently, and for that reason do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (but primarily the U.S. dollar) and are actively traded in over-the-counter secondary markets. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least one year's rolling interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. Brady Bonds are often viewed as having three or four valuation components: the collateralized repayment of principal at final maturity; the collateralized interest payments; the uncollateralized interest payments; and any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk"). In light of the residual risk of Brady Bonds and the history of defaults of countries issuing Brady Bonds, with respect to commercial bank loans by public and private entities, investments in Brady Bonds may be viewed as speculative. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, each Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs and may purchase forward foreign currency contracts. Because of these factors, the value of the assets of each Fund as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and each Fund may incur costs in connection with conversions between various currencies. Although each Fund's custodian values the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. Each Fund will do so from time to time, however, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Each Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. Because each Fund normally will be invested in both U.S. and foreign securities markets, changes in each Fund's share price may have a low correlation with movements in U.S. markets. Each Fund's share price will reflect the movements of the different stock and bond markets in which it is invested (both U.S. and foreign), and of the currencies in which the investments are denominated. Thus, the strength or weakness of the U.S. dollar against foreign currencies may account for part of each Fund's investment performance. U.S. and foreign securities markets do not always move in step with each other, and the total returns from different markets may vary significantly. Currencies in which each Fund's assets are denominated may be devalued against the U.S. dollar, resulting in a loss to each Fund. FOREIGN CURRENCY EXCHANGE TRANSACTIONS Each Fund may enter into forward foreign currency contracts in order to protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date (usually less than a year), and typically is individually negotiated and privately traded by currency traders and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for commissions, they do realize a profit based on the difference between the price at which they are buying and selling various currencies. Although these contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. While each Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for each Fund than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by that Fund. An imperfect correlation of this type may prevent a Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. Each Fund may purchase currency forwards and combine such purchases with sufficient cash or short-term securities to create unleveraged substitutes for investments in foreign markets when deemed advantageous. Each Fund may also combine the foregoing with bond futures or interest rate futures contracts to create the economic equivalent of an unhedged foreign bond position. Each Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which that Fund has or in which the Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to a Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. OTHER INVESTMENT COMPANIES Each Fund may invest up to 10% of its total assets in the shares of other investment companies. As a shareholder of an investment company, a Fund would bear its ratable shares of the fund's expenses (which often include an asset-based management fee). Each Fund could also lose money by investing in other investment companies, since the value of their respective investments and the income they generate will vary daily based on prevailing market conditions. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which a Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, each Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. Each Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, a Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, each Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. Each Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by a Fund. Each Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. Each Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on each Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of each Fund's borrowings will be fixed, each Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. WARRANTS The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. However, prices of warrants do not necessarily move in a tandem with the prices of the underlying securities, and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by any Fund were not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. REAL ESTATE INVESTMENT TRUSTS (REITS) A REIT is a corporation, trust or association that invests in real estate mortgages or equities for the benefit of its investors. REITs are dependent upon management skill, may not be diversified and are subject to the risks of financing projects. Such entities are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs indirectly through Ivy Global Fund, a shareholder will bear not only his or her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligations in an OTC transaction, Fund would need to negotiate directly with the counterparty. Each Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by that Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that a Fund has written lapses unexercised, because the Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by each Fund, are taxable as ordinary income. See "Taxation." Each Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by that Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by each Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When a Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may write (sell) covered call options on each Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. Each Fund may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the Fund for the options). In view of the investment objectives of each Fund, each Fund generally would write call options only in circumstances where the investment adviser to the Fund does not anticipate significant appreciation of the underlying security in the near future or has otherwise determined to dispose of the security. A "covered" call option means generally that so long as a Fund is obligated as the writer of a call option, that Fund will (i) own the underlying securities subject to the option, or (ii) have the right to acquire the underlying securities through immediate conversion or exchange of convertible preferred stocks or convertible debt securities owned by the Fund. Although a Fund receives premium income from these activities, any appreciation realized on an underlying security will be limited by the terms of the call option. Each Fund may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, a Fund receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period, if the option is exercised. So long as a Fund remains obligated as a writer of a call option, it forgoes the opportunity to profit from increases in the market price of the underlying security above the exercise price of the option, except insofar as the premium represents such a profit (and retains the risk of loss should the value of the underlying security decline). PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may purchase a put option on an underlying security owned by that Fund as a defensive technique in order to protect against an anticipated decline in the value of the security. Each Fund, as the holder of the put option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that a Fund must pay. These costs will reduce any profit the Fund might have realized had it sold the underlying security instead of buying the put option. The premium paid for the put option would reduce any capital gain otherwise available for distribution when the security is eventually sold. The purchase of put options will not be used by any Fund for leverage purposes. Each Fund may also purchase a put option on an underlying security that it owns and at the same time write a call option on the same security with the same exercise price and expiration date. Depending on whether the underlying security appreciates or depreciates in value, the Fund would sell the underlying security for the exercise price either upon exercise of the call option written by it or by exercising the put option held by it. A Fund would enter into such transactions in order to profit from the difference between the premium received by the Fund for the writing of the call option and the premium paid by the Fund for the purchase of the put option, thereby increasing the Fund's current return. Each Fund may write (sell) put options on individual securities only to effect a "closing sale transaction." RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of a U.S. option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities (or cash in the case of an index option) at the exercise price. If a put or call option purchased by a Fund is not sold when it has remaining value, and if the market price of the underlying security (or index), in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security (or index) is purchased to hedge against price movements in a related security (or securities), the price of the put or call option may move more or less than the price of the related security (or securities). In this regard, there are differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position. Finally, trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. Closing transactions can be made for OTC options only by negotiating directly with the counterparty or by a transaction in the secondary market, if any such market exists. Transfer of an OTC option is usually prohibited absent the consent of the original counterparty. There is no assurance that a Fund will be able to close out an OTC option position at a favorable price prior to its expiration. An OTC counterparty may fail to deliver or to pay, as the case may be. In the event of insolvency of the counterparty, a Fund might be unable to close out an OTC option position at any time prior to its expiration. Although a Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, a Fund may experience losses in some cases as a result of such inability. When conducted outside the U.S., options transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in each Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and liquidity. Each Fund's options activities also may have an impact upon the level of its portfolio turnover and brokerage commissions. See "Portfolio Turnover." Each Fund's success in using options techniques depends, among other things, on IMI's ability to predict accurately the direction and volatility of price movements in the options and securities markets, and to select the proper type, timing of use and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS IN GENERAL. Each Fund may enter into futures contracts and options on futures contracts for hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a commodity at a specified price and time. When a purchase or sale of a futures contract is made by a Fund, that Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or liquid securities ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, each Fund will mark-to-market its open futures position. Each Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery of offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, each Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, each Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. When purchasing a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, each Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund, or, if lower, may cover the difference with cash or short-term securities. When selling a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, each Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). When selling a call option on a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, equal the total market value of the futures contract underlying the call option. Alternatively, a Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund, or covering the difference if the price is higher. When selling a put option on a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that equal the purchase price of the futures contract less any margin on deposit. Alternatively, a Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund, or, if lower, the Fund may hold securities to cover the difference. FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund may engage in foreign currency futures contracts and related options transactions for hedging purposes. A foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a foreign currency at a specified price and time. An option on a foreign currency futures contract gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon the exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. Each Fund may purchase call and put options on foreign currencies as a hedge against changes in the value of the U.S. dollar (or another currency) in relation to a foreign currency in which portfolio securities of the Fund may be denominated. A call option on a foreign currency gives the buyer the right to buy, and a put option the right to sell, a certain amount of foreign currency at a specified price during a fixed period of time. Each Fund may invest in options on foreign currency which are either listed on a domestic securities exchange or traded on a recognized foreign exchange. In those situations where foreign currency options may not be readily purchased (or where such options may be deemed illiquid) in the currency in which the hedge is desired, the hedge may be obtained by purchasing an option on a "surrogate" currency, i.e., a currency where there is tangible evidence of a direct correlation in the trading value of the two currencies. A surrogate currency's exchange rate movements parallel that of the primary currency. Surrogate currencies are used to hedge an illiquid currency risk, when no liquid hedge instruments exist in world currency markets for the primary currency. Each Fund will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade, or similar entity or quoted on an automated quotation system. Each Fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the aggregate initial margin deposits for futures contracts held by the Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," would exceed 5% of the liquidation value of the Fund's portfolio (or the Fund's net asset value), after taking into account unrealized profits and unrealized losses on any such contracts the Fund has entered into. A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. For additional information about margin deposits required with respect to futures contracts and options thereon, see "Futures Contracts and Options on Futures Contracts." RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in a Fund's portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an active secondary market will continue to exist. Currency futures contracts and options thereon may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such position also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. SECURITIES INDEX FUTURES CONTRACTS Each Fund (except Ivy Global Natural Resources Fund) may enter into securities index futures contracts as an efficient means of regulating the Fund's exposure to the equity markets. Each Fund will not engage in transactions in futures contracts for speculation, but only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. The value of a unit is the current value of the stock index. For example, the S&P 500 Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The index futures contract specifies that no delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if a Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If a Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). RISKS OF SECURITIES INDEX FUTURES. Each Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. Each Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, each Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although each Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when a Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, a Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. Each Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. Each Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. When purchasing an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund. When selling an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in cash or liquid assets in a segregated account with the Fund's custodian). COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions and multiple currency transactions (including forward currency contracts) and some combination of futures, options, and currency transactions ("component" transactions), instead of a single transaction, as part of a single or combined strategy when, in the opinion of IMI, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. PORTFOLIO TURNOVER Each Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining each Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. TRUSTEES AND OFFICERS Each Fund's Board of Trustees (the "Board") is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering each Fund's day-to-day operations. The Trustees and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: POSITION WITH BUSINESS AFFILIATIONS NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS John S. Anderegg, Jr. Trustee Chairman, Dynamics Research 60 Concord Street Corp. (instruments and controls); Wilmington, MA 01887 Director, Burr-Brown Corp. Age: 75 (operational amplifiers); Director, Metritage Incorporated (level measuring instruments); Trustee of Mackenzie Series Trust (1992-1998). James W. Broadfoot President President, Ivy Management Inc. 700 South Federal Hwy. and (1996-present); Senior Vice Suite 300 Trustee President, Ivy Management, Inc. Boca Raton, FL 33432 (1992-1996); Director and Senior Age: 56 Vice President, Mackenzie [*Deemed to be an Investment Management Inc. (1995- "interested person" present); Senior Vice President, of the Trust, as Mackenzie Investment Management defined under the Inc. (1990-1995). 1940 Act.] Paul H. Broyhill Trustee Chairman, BMC Fund, Inc. 800 Hickory Blvd. (1983-present); Chairman, Golfview Park-Box 500 Broyhill Family Foundation, Lenoir, NC 28645 Inc. (1983-Present); Chairman Age: 75 and President, Broyhill Investments, Inc. (1983-present); Chairman, Broyhill Timber Resources (1983-present); Management of a personal portfolio of fixed-income and equity investments (1983- present); Trustee of Mackenzie Series Trust (1988-1998); Director of The Mackenzie Funds Inc. (1988-1995). Keith J. Carlson Chairman Senior Vice President of 700 South Federal Hwy. and Mackenzie Investment Management, Suite 300 Trustee Inc. (1996-present); Senior Vice Boca Raton, FL 33432 President and Director of Age: 42 Mackenzie Investment Management, [*Deemed to be an Inc. (1994-1996); Senior Vice "interested person" President and Treasurer of of the Trust, as defined Mackenzie Investment Management, under the Inc. (1989-1994); Senior Vice 1940 Act.] President and Director of Ivy Management Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management Inc. (1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); Senior Vice President and Director, Ivy Mackenzie Services Corp. (1996- present); President and Director of Ivy Mackenzie Services Corp. (1993-1996); Trustee and President of Mackenzie Series Trust (1996-1998); Vice President of Mackenzie Series Trust (1994- 1998); Treasurer of Mackenzie Series Trust (1985-1994); President, Chief Executive Officer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Executive Vice President and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); Trustee of Mackenzie Series Trust (1996-1998). Stanley Channick Trustee President and Chief Executive 11 Bala Avenue Officer, The Whitestone Bala Cynwyd, PA 19004 Corporation (insurance agency); Age: 75 Chairman, Scott Management Company (administrative services for insurance companies); President, The Channick Group (consultants to insurance companies and national trade associations); Trustee of Mackenzie Series Trust (1994- 1998); Director of The Mackenzie Funds Inc. (1994-1995). Roy J. Glauber Trustee Mallinckrodt Professor of Lyman Laboratory Physics, Harvard University of Physics (1974-present); Trustee of Harvard University Mackenzie Series Trust (1994- Cambridge, MA 02138 1997). Age: 73 Dianne Lister Trustee President and Chief Executive 556 University Avenue Officer, The Hospital for Sick Toronto, Ontario L4J 2T4 Children Foundation (1993- present); Chief Operating Officer, The Hospital for Sick Children Foundation (1992-1993); Executive Vice President, The Hospital for Sick Children Foundation (1991-1992). Joseph G. Rosenthal Trustee Chartered Accountant 110 Jardin Drive (1958-present); Trustee of Unit #12 Mackenzie Series Trust Concord, Ontario Canada (1985-1998); Director of L4K 2T7 The Mackenzie Funds Inc. Age: 64 (1987-1995). Richard N. Silverman Trustee Director, Newton-Wellesley 18 Bonnybrook Road Hospital; Director, Beth Waban, MA 02168 Israel Hospital; Director, Age: 75 Boston Ballet; Director, Boston Children's Museum; Director, Brimmer and May School. J. Brendan Swan Trustee President, Airspray Inter- 4701 North Federal Hwy. national, Inc.; Joint Managing Suite 465 Director, Airspray International Pompano Beach, FL 33064 B.V. (an environmentally sensitive Age: 69 packaging company); Director of Polyglass LTD.; Director, The Mackenzie Funds Inc. (1992-1995); Trustee of Mackenzie Series Trust (1992-1998). Edward M. Tighe Trustee Chief Executive Officer, CITCO 5900 N. Andrews Avenue Technology Management, Inc. Suite 700 ("CITCO") (computer software Ft. Lauderdale, FL 33309 development and consulting) (1999-present); President and Director, Global Technology Management, Inc. (CITCO's predecessor) (1992-1998); Managing Director, Global Mutual Fund Services, Ltd. (financial services firm); President, Director and Chief Executive Officer, Global Mutual Fund Services, Inc. (1994-present). C. William Ferris Secretary/ Senior Vice President, 700 South Federal Hwy. Treasurer Chief Financial Officer Suite 300 and Secretary/Treasurer Boca Raton, FL 33432 of Mackenzie Investment Age: 54 Management Inc. (1995-present); Senior Vice President, Finance and Administration/Compliance Officer of Mackenzie Investment Management Inc. (1989-1994); Senior Vice President, Secretary/ Treasurer and Clerk of Ivy Management Inc. (1994- present); Vice President, Finance/Administration and Compliance Officer of Ivy Management Inc. (1992-1994); Senior Vice President, Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); President and Director of Ivy Mackenzie Services Corp. (1996-present); Secretary/Treasurer and Director of Ivy Mackenzie Services Corp. (1993-1996); Secretary/Treasurer of The Mackenzie Funds Inc. (1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994-1998). COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 1999) PENSION OR TOTAL RETIREMENT ESTIMATED COMPENSATION BENEFITS ANNUAL FROM TRUST AGGREGATE ACCRUED AS BENEFITS AND FUND NAME, COMPENSATION PART OF FUND UPON COMPLEX PAID POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES John S. Anderegg, Jr. (Trustee) James W. Broadfoot (Trustee and President) Paul H. Broyhill (Trustee) Keith J. Carlson (Trustee and Chairman) Stanley Channick (Trustee) Frank W. DeFriece, Jr. (Trustee) Dianne Lister (Trustee) Roy J. Glauber (Trustee) Joseph G. Rosenthal (Trustee) Richard N. Silverman (Trustee) J. Brendan Swan (Trustee) C. William Ferris (Secretary/ Treasurer) * The Fund complex consists of Ivy Fund and Mackenzie Solutions. TO THE KNOWLEDGE OF THE TRUST, AS OF , no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions [to be completed by amendment]. As of ______________, the Officers and Trustees of the Trust as a group owned beneficially or of record less than 1% of the outstanding Class A, Class B, Class C, Class I and Advisor Class shares of each of the twenty-one Ivy funds that are series of the Trust, except that [to be completed by amendment]. PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted to engage in personal securities transactions, subject to the requirements and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the "Code of Ethics"). The Code of Ethics is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the Funds. Among other things, the Code of Ethics, which IMI believes complies with Rule 17j-1 under the 1940 Act, prohibits certain types of transactions absent prior approval, applies to portfolio managers, traders, research analysts and others involved in the investment advisory process, and imposes time periods during which personal transactions in certain securities may not be made, and requires the submission of duplicate broker confirmations and quarterly and annual reporting of securities transactions. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate officers or compliance personnel. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation organized under the laws of Ontario and whose shares are listed for trading on the TSE. MFC provides investment advisory services to the Fund pursuant to an Investment Advisory Agreement, and IMI provides business management and investment advisory services to each of the other Funds pursuant to a Business Management and Investment Advisory Agreement (each an "Agreement"). IMI provides business management services to Ivy Global Natural Resources Fund pursuant to a Business Management Agreement (the "Management Agreement"). IMI also currently acts as manager and investment adviser to the other series of Ivy Fund and the five series of Mackenzies Solutions. The Agreements obligate IMI and MFC to make investments for the account of each Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. IMI and MFC also determine the securities to be purchased or sold by each Fund and place orders with brokers or dealers who deal in such securities. Under the IMI Agreement and the Management Agreement, IMI also provides certain business management services. IMI is obligated to (1) coordinate with each Fund's Custodian and monitor the services it provides to each Fund; (2) coordinate with and monitor any other third parties furnishing services to each Fund; (3) provide each Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund's needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by each Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with the Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. IMI is also responsible for reviewing the activities of MFC to ensure that Ivy Global Natural Resources Fund is operated in compliance with its investment objectives and policies and with the 1940 Act. Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue, London, England EC2M 2PA, serves as subadviser to Ivy European Opportunities Fund under an Agreement with IMI. For its services, Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of the Fund's average net assets. As of February 1, 1999, Henderson also serves as subadviser with respect to 50% of the net assets of Ivy International Small Companies Fund, for which Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of that portion of the Fund's assets that Henderson manages. Henderson is an indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance and financial services company located in New South Wales, Australia. Ivy Global Natural Resources Fund pays IMI a monthly fee for providing business management services at an annual rate of 0.50% of the Fund's average net assets. For investment advisory services, Ivy Global Natural Resources Fund pays MFC a monthly fee at an annual rate of 0.50% of its average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Natural Resources Fund paid IMI fees of $32,056, $20,977 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, IMI reimbursed Fund expenses in the amount of $25,180, $147,952 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, the Fund paid MFC fees of $32,056, $20,977 and [ ], respectively. Each other Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 1.00% of the Fund's average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Asia Pacific Fund paid IMI fees of $10,473, $49,509 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, IMI reimbursed Fund expenses of $10,473, $167,194 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy China Region Fund paid IMI fees of $277,601, $187,381 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, IMI reimbursed Fund expenses of $18,377, $105,095 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Developing Nations Fund paid IMI fees of $284,290, $156,166 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, IMI reimbursed Fund expenses of $22,860, $200,839 and [ ], respectively. During the period from commencement (May 3, 1999) through December 31, 1999, Ivy European Opportunities Fund paid IMI fees of [ ]. During the same period, IMI reimbursed Fund expenses in the amount of [ ]. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Fund paid IMI fees of $383,981, $275,958 and [ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $98,102 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Science & Technology Fund paid IMI fees of $229,616, $280,079 and [ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and [ ], respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997 and the fiscal years ended December 31, 1998 and 1999, Ivy International Fund II paid IMI fees of $413,862, $1,356,028 and [ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $123,177, $186,536 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy International Small Companies Fund paid IMI fees of $28,799, $34,504 and [ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $28,799, $134,787 and [ ], respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997 and the fiscal years ended December 31, 1998 and 1999, Ivy Pan-Europe Fund paid IMI fees of $1,974, $43,978 and [ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $1,974, $148,399 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy South America Fund paid IMI fees of $94,278, $53,857 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, IMI reimbursed Fund expenses of $68,548, $145,687 and [ ], respectively. Under the Agreements, the Trust pays the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. IMI currently limits each Fund's total operating expenses (excluding Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) to an annual rate of 1.95% of that Fund's average net assets, which may lower each Fund's expenses and increase its yield. The Agreements will continue in effect with respect to each Fund from year to year, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the Independent Trustees and (ii) either (a) by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Fund or (b) by the vote of a majority of the entire Board. If the question of continuance of the Agreement (or adoption of any new agreement) is presented to the shareholders, continuance (or adoption) shall be effected with respect to each Fund only if approved by the affirmative vote of a majority of the outstanding voting securities of that Fund. See "Capitalization and Voting Rights." The Agreements may be terminated with respect to each Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of a Fund, on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. Each Agreement shall terminate automatically in the event of its assignment. DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of each Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. Each Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund's behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at each Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Pursuant to the Distribution Agreement, IMDI is entitled to deduct a commission on all Class A Fund shares sold equal to the difference, if any, between the public offering price, as set forth in each Fund's then-current prospectus, and the net asset value on which such price is based. Out of that commission, IMDI may reallow to dealers such concession as IMDI may determine from time to time. In addition, IMDI is entitled to deduct a CDSC on the redemption of Class A shares sold without an initial sales charge and Class B and Class C shares, in accordance with, and in the manner set forth in, the Prospectus. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Asia Pacific Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Asia Pacific Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Asia Pacific Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy China Region Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy China Region Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemption of Class C shares of Ivy China Region Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Developing Nations Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Developing Nations Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Developing Nations Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy European Opportunities Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy European Opportunities Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy European Opportunities Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Global Fund [ ] in sales commissions, of which [ ] was retained after dealer Allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Global Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Global Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Global Natural Resources Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Global Natural Resources Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Global Natural Resources Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Global Science & Technology Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Global Science & Technology Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Global Science & Technology Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy International Fund II [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy International Fund II. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy International Fund II. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy International Small Companies Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy International Small Companies Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy International Small Companies Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Pan-Europe Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Pan-Europe Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Pan-Europe Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy South America Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy South America Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy South America Fund. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to any Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to the Fund or by a Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund represent an equal pro rata interest in that Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of each Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) each Fund's Class B shares will convert automatically into Class A shares of that Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of each Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to each Fund's Class A, Class B and Class C shares (each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees have concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan will benefit each Fund and its shareholders. The Trustees of the Trust believe that the Plans should result in greater sales and/or fewer redemptions of each Fund's shares, although it is impossible to know for certain the level of sales and redemptions of any Fund's shares in the absence of a Plan or under an alternative distribution arrangement. Under each Plan, each Fund pays IMDI a service fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the average daily net assets attributable to its Class A, Class B or Class C shares, as the case may be. This fee constitutes reimbursement to IMDI for fees paid by IMDI. The services for which service fees may be paid include, among other things, advising clients or customers regarding the purchase, sale or retention of shares of the Fund, answering routine inquiries concerning the Fund and assisting shareholders in changing options or enrolling in specific plans. Pursuant to each Plan, service fee payments made out of or charged against the assets attributable to the Fund's Class A, Class B or Class C shares must be in reimbursement for services rendered for or on behalf of the affected class. The expenses not reimbursed in any one month may be reimbursed in a subsequent month. The Class A Plan does not provide for the payment of interest or carrying charges as distribution expenses. Under each Fund's Class B and Class C Plans, each Fund also pays IMDI a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets attributable to its Class B or Class C shares. This fee constitutes compensation to IMDI and is not dependent on IMDI's expenses incurred. IMDI may reallow to dealers all or a portion of the service and distribution fees as IMDI may determine from time to time. The distribution fee compensates IMDI for expenses incurred in connection with activities primarily intended to result in the sale of the Fund's Class B or Class C shares, including the printing of prospectuses and reports for persons other than existing shareholders and the preparation, printing and distribution of sales literature and advertising materials. Pursuant to each Class B and Class C Plan, IMDI may include interest, carrying or other finance charges in its calculation of distribution expenses, if not prohibited from doing so pursuant to an order of or a regulation adopted by the SEC. Among other things, each Plan provides that (1) IMDI will submit to the Board at least quarterly, and the Trustees will review, written reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made; (2) each Plan will continue in effect only so long as such continuance is approved at least annually, and any material amendment thereto is approved, by the votes of a majority of the Board, including the Independent Trustees, cast in person at a meeting called for that purpose; (3) payments by each Fund under each Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares of the relevant class; and (4) while each Plan is in effect, the selection and nomination of Independent Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust. IMDI may make payments for distribution assistance and for administrative and accounting services from resources that may include the management fees paid by each Fund. IMDI also may make payments (such as the service fee payments described above) to unaffiliated broker-dealers banks, investment advisers, financial institutions and other entities for services rendered in the distribution of each Fund's shares. To qualify for such payments, shares may be subject to a minimum holding period. However, no such payments will be made to any dealer or broker or other party if at the end of each year the amount of shares held does not exceed a minimum amount. The minimum holding period and minimum level of holdings will be determined from time to time by IMDI. A report of the amount expended pursuant to each Plan, and the purposes for which such expenditures were incurred, must be made to the Board for its review at least quarterly. The Class B Plan and underwriting agreement were amended effective March 16, 1999 to permit IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other distribution-related expenses. In connection with such amendments, the Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the amendments to the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. During the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999 Ivy Asia Pacific Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Asia Pacific Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, $[ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Asia Pacific Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Asia Pacific Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy China Region Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999 Ivy China Region Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy China Region Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, $[ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy China Region Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy China Region Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy Developing Nations Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999 Ivy Developing Nations Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Developing Nations Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, $[ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Developing Nations Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Developing Nations Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy European Opportunities Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999 Ivy European Opportunities Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy European Opportunities Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, $[ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy European Opportunities Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy European Opportunities Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy Global Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999 Ivy Global Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Global Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, $[ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Global Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Global Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy Global Natural Resources Fund paid IMDI $[ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy Global Natural Resources Fund paid IMDI $[ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI $[ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Global Natural Resources Fund: advertising $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Global Natural Resources Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Global Natural Resources Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy Global Science & Technology Fund paid IMDI $[ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999 Ivy Global Science & Technology Fund paid IMDI $[ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI $[ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Global Science & Technology Fund: advertising $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Global Science & Technology Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Global Science & Technology Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy International Fund II paid IMDI $[ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy International Fund II paid IMDI $[ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI $[ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy International Fund II: advertising $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy International Fund II: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ], and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy International Fund II: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ] compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy International Small Companies Fund paid IMDI $[ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy International Small Companies Fund paid IMDI $[ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1998, the Fund paid IMDI $[ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy International Small Companies Fund: advertising $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy International Small Companies Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy International Small Companies Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy Pan-Europe Fund paid IMDI $[ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy Pan-Europe Fund paid IMDI $[ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI $[ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Pan-Europe Fund: advertising $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Pan-Europe Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Pan-Europe Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ] and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, Ivy South America Fund paid IMDI $[ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy South America Fund paid IMDI $[ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI $[ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy South America Fund: advertising $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental, $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy South America Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general and administrative, $[ ]; telephone, $[ ]; and occupancy and equipment rental $[ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy South America Fund: advertising, $[ ]; printing and mailing of prospectuses to persons other than current shareholders, $[ ]; compensation to dealers, $[ ]; compensation to sales personnel, $[ ]; seminars and meetings, $[ ]; travel and entertainment, $[ ]; general administrative, $[ ]; telephone, $[ ] and occupancy and equipment rental, $[ ]. Each Plan may be amended at any time with respect to the class of shares of the Fund to which the Plan relates by vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of considering such amendment. Each Plan may be terminated at any time with respect to the class of shares of the Fund to which the Plan relates, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of that class. If the Distribution Agreement or the Distribution Plans are terminated (or not renewed) with respect to any of the Ivy funds (or class of shares thereof), each may continue in effect with respect to any other fund (or Class of shares thereof) as to which they have not been terminated (or have been renewed). CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the assets of each Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of each Fund's foreign securities. With respect to each Fund, the Custodian may receive, as partial payment for its services to each Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to a Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for each Fund. As compensation for those services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of the Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. During the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy China Region Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Developing Nations Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy European Opportunities Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Global Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Global Natural Resources Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Global Science & Technology Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy International Fund II paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy International Small Companies Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Pan-Europe Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy South America Fund paid MIMI $[ ] under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor Class account. Each Fund with Class I shares pays a monthly fee at an annual rate of $10.25 per open Class I account. In addition, each Fund pays a monthly fee at an annual rate of $4.58 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Asia Pacific Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy China Region Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Developing Nations Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy European Opportunities Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Global Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Global Natural Resources Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Global Science & Technology Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy International Fund II totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy International Small Companies Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Pan-Europe Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy South America Fund totaled $[ ]. Certain broker-dealers that maintain shareholder accounts with each Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by IMSC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. IMSC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to each Fund. As compensation for these services, each Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets. Each Fund with Class I shares pays MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I. Such fees for the fiscal year ended December 31, 1999 for Ivy Asia Pacific Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy China Region Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Developing Nations Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy European Opportunities Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Global Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Global Natural Resources Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Global Science & Technology Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy International Fund II totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy International Small Companies Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Pan-Europe Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy South America Fund totaled $[ ]. Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of each Fund. AUDITORS [ ], independent public accountants, has been selected as auditors for the Trust. The audit services performed by [ ] include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI (or for Global Natural Resources Fund, MFC) places orders for the purchase and sale of each Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by the Funds for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI (or MFC) attempts to deal directly with the principal market makers, except in those circumstances where IMI (or MFC) believes that a better price and execution are available elsewhere. IMI (or MFC) selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI (or MFC) in servicing all of its accounts. In addition, not all of these services may be used by IMI (or MFC) in connection with the services it provides to the Fund or the Trust. IMI (or MFC) may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI (or MFC) will not, however, execute brokerage transactions other than at the best price and execution. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Asia Pacific Fund paid brokerage commissions of $18,500, $75,104 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy China Region Fund paid brokerage commissions of $70,846, $112,289 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Developing Nations Fund paid brokerage commissions of $170,306, $83,565 and [ ], respectively. During the period from commencement of operations (May 3, 1999) through December 31, 1999, Ivy European Opportunities Fund paid brokerage commissions of $[ ]. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Fund paid brokerage commissions of $123,985, $76,661 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Natural Resources Fund paid brokerage commissions of $128,646, $49,752 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Science & Technology Fund paid brokerage commissions of $99,546, $110,302 and [ ], respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997, and the fiscal years ended December 31, 1998 and 1999, Ivy International Fund II paid brokerage commissions of $332,022, $225,584 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy International Small Companies Fund paid brokerage commission of $14,913, $5,087 and [ ] , respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997, and the fiscal years ended December 31, 1998 and 1999, Ivy Pan-Europe Fund paid brokerage commissions of $491, $11,639 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy South America Fund paid brokerage commissions of $17,213, $19,922 and [ ], respectively. Brokerage commissions vary from year to year in accordance with the extent to which a particular Fund is more or less actively traded. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI (or MFC) deems to be a desirable investment for each Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for any Fund shares with securities and may discontinue accepting securities as payment for any Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and each Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. The Trustees have authorized twenty-one series, each of which represents a fund. Pursuant to the Declaration of Trust, the Trustees may terminate any Fund upon written notice to shareholders. This might occur, for example, if a Fund did not reach or failed to maintain an economically viable size. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy US Blue Chip Fund and Ivy [ ] Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of that Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of that Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to that Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Amended and Restated Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Amended and Restated Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of any Fund held personally liable for the obligations of that Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund (the other ten series of the Trust). (Effective April 18, 1997, Ivy International Fund suspended the offer of its shares to new investors). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to Ivy Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds (except Ivy International Fund unless they have an existing Ivy International Fund account). Before effecting an exchange, shareholders of a Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their Class A shares ("outstanding Class A shares") for Class A shares of another Ivy fund ("new Class A Shares") on the basis of the relative net asset value per Class A share, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A shares and the sales charge payable at the time of the exchange on the new Class A shares. (The additional sales charge will be waived for Class A shares that have been invested for a period of 12 months or longer.) Class A shareholders may also exchange their shares for shares of Ivy Money Market Fund (no initial sales charge will be assessed at the time of such an exchange). Each Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of The Legend Group and United Planners Financial Services of America, Inc. This privilege will apply on to Class A Shares of a Fund that are purchased using all or a portion of the proceeds obtained by such clients through redemptions of shares of a mutual fund (other than one of the Funds) on which a sales charge was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer privilege must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV transfer privilege also applies to Fund shares purchased directly by clients of such dealers as long as their accounts are linked to the dealer's master account. The normal service fee, as described in the "Initial Sales Charge Alternative - Class A Shares" section of the Prospectus, will be paid to those dealers in connection with these purchases. IMDI may from time to time pay a special cash incentive to The Legend Group or United Planners Financial Services of America, Inc. in connection with sales of shares of a Fund by its registered representatives under the NAV transfer privilege. Additional information on sales charge reductions or waivers may be obtained from IMDI at the address listed on the cover of this Statement of Additional Information. CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders may exchange their Class A shares that are subject to a contingent deferred sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy fund ("new Class A shares") on the basis of the relative net asset value per Class A share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class A shares. Class A shareholders of any Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC period following an exchange if such period is longer than the CDSC period, if any, applicable to the new Class A shares. For purposes of computing the CDSC that may be payable upon the redemption of the new Class A shares, the holding period of the outstanding Class A shares is "tacked" onto the holding period of the new Class A shares. CLASS B: Class B shareholders may exchange their Class B shares ("outstanding Class B shares") for Class B shares of another Ivy fund ("new Class B shares") on the basis of the relative net asset value per Class B share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class B shares. Class B shareholders of any Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC schedule (or period) following an exchange if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the new Class B shares. Class B shares of any Fund acquired through an exchange of Class B shares of another Ivy fund will be subject to that Fund's CDSC schedule (or period) if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the Ivy fund from which the exchange was made. For purposes of both the conversion feature and computing the CDSC that may be payable upon the redemption of the new Class B shares (prior to conversion), the holding period of the outstanding Class B shares is "tacked" onto the holding period of the new Class B shares. The following CDSC table applies to Class B shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund, and Ivy [ ] Fund. CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE YEAR SINCE PURCHASE First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I: Subject to the restrictions set forth in the following paragraph, Class I shareholders may exchange their outstanding Class I shares for Class I shares of another Ivy Fund on the basis of the relative net asset value per share. ALL CLASSES: The minimum value of shares which may be exchanged into an Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case of Class I shares). No exchange out of any Fund (other than by a complete exchange of all Fund shares) may be made if it would reduce the shareholder's interest in the Fund to less than $1,000 ($250,000 in the case of Class I shares). Each exchange will be made on the basis of the relative net asset value per share of the Ivy funds involved in the exchange next computed following receipt by IMSC of telephone instructions by IMSC or a properly executed request. Exchanges, whether written or telephonic, must be received by IMSC by the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) to receive the price computed on the day of receipt. Exchange requests received after that time will receive the price next determined following receipt of the request. The exchange privilege may be modified or terminated at any time, upon at least 60 days' notice to the extent required by applicable law. See "Redemptions." An exchange of shares between any of the Ivy funds will result in a taxable gain or loss. Generally, this will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. However, in certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on an exchange. See "Taxation." With limited exceptions, gain realized by a tax-deferred retirement plan will not be taxable to the plan and will not be taxed to the participant until distribution. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. LETTER OF INTENT Reduced sales charges apply to initial investments in Class A shares of any Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may be submitted by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account. See the Account Application in the Prospectus. Any investor may submit a Letter of Intent stating that he or she will invest, over a period of 13 months, at least $50,000 in Class A shares of a Fund. A Letter of Intent may be submitted at the time of an initial purchase of Class A shares of a Fund or within 90 days of the initial purchase, in which case the Letter of Intent will be back dated. A shareholder may include, as an accumulation credit, the value (at the applicable offering price) of all Class A shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US BLUE CHIP FUND, IVY US EMERGING GROWTH FUND, AND IVY [ ] FUND (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy Funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy or the Trust to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of such letter before signing. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from IMSC, who may impose a charge for establishing the account. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, an eligible individual may contribute up to the lesser of $2,000 or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are both employed, and both are under age 70-1/2, each may set up his or her own IRA within these limits. If both earn at least $2,000 per year, the maximum potential contribution is $4,000 per year for both. For years after 1996, the result is similar even if one spouse has no earned income; if the joint earned income of the spouses is at least $4,000, a contribution of up to $2,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (or his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includable in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses and amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAS: Shares of each Fund also may be used as a funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $2,000 per year to a Roth IRA. The maximum contribution amount diminishes and gradually falls to zero for single filers with adjusted gross incomes ranging from $95,000 to $110,000. Married couples earning less than $150,000 combined, and filing jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum contribution amount for married couples filing jointly phases out from $150,000 to $160,000. An individual whose adjusted gross income exceeds the maximum phase-out amount cannot contribute to a Roth IRA. An eligible individual can contribute money to a traditional IRA and a Roth IRA as long as the total contribution to all IRAs does not exceed $2,000. Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA (other than the amount of nondeductible contributions) are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: reaching age 59 1/2, death, disability, deductible medical expenses, the purchase of health insurance for certain unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $30,000 or 25% of compensation or earned income to a money purchase pension plan or to a combination profit sharing and money purchase pension plan arrangement each year on behalf of each participant. To be deductible, total contributions to a profit sharing plan generally may not exceed 15% of the total compensation or earned income of all participants in the plan, and total contributions to a combination money purchase-profit sharing arrangement generally may not exceed 25% of the total compensation or earned income of all participants. The amount of compensation or earned income of any one participant that may be included in computing the deduction is limited (generally to $150,000 for benefits accruing in plan years beginning after 1993, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Custodial Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's separation from service. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay tax-deductible medical expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Trust in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from IMSC. Distributions from the 403(b)(7) Account may be made only following death, disability, separation from service, attainment of age 59-1/2, or incurring a financial hardship. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical expenses; (4) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (5) rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account. SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP accounts generally are subject to all rules applicable to IRA accounts, except the deduction limits, and are subject to certain employee participation requirements. No new salary reduction SEPs ("SARSEPs") may be established after 1996, but existing SARSEPs may continue to be maintained, and non-salary reduction SEPs may continue to be established as well as maintained after 1996. SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k) for years after 1996. An employee can make pre-tax salary reduction contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if the employer maintains or maintained any other qualified retirement plan with respect to which any contributions or benefits have been credited. REINVESTMENT PRIVILEGE Shareholders who have redeemed Class A shares of any Fund may reinvest all or a part of the proceeds of the redemption back into Class A shares of the same Fund at net asset value (without a sales charge) within 60 days from the date of redemption. This privilege may be exercised only once. The reinvestment will be made at the net asset value next determined after receipt by IMSC of the reinvestment order accompanied by the funds to be reinvested. No compensation will be paid to any sales personnel or dealer in connection with the transaction. Any redemption is a taxable event. A loss realized on a redemption generally may be disallowed for tax purposes if the reinvestment privilege is exercised within 30 days after the redemption. In certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on a redemption if the reinvestment privilege is exercised. See "Taxation." RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of each Fund. See "Initial Sales Charge Alternative -- Class A Shares" in the Prospectus. The reduced sales charge is applicable to investments made at one time by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account (including a pension, profit sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code). Rights of Accumulation are also applicable to current purchases of all of the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons enumerated above, where the aggregate quantity of Class A shares of such funds (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) and of any other investment company distributed by IMDI, previously purchased or acquired and currently owned, determined at the higher of current offering price or amount invested, plus the Class A shares being purchased, amounts to $50,000 or more for all funds other than Ivy Bond; or $100,000 or more for Ivy Bond Fund. At the time an investment takes place, IMSC must be notified by the investor or his or her dealer that the investment qualifies for the reduced sales charge on the basis of previous investments. The reduced sales charge is subject to confirmation of the investor's holdings through a check of the particular fund's records. SYSTEMATIC WITHDRAWAL PLAN A shareholder (except shareholders with accounts in Class I) may establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or by delivery to IMSC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to IMSC of all share certificates then outstanding in such shareholder's name, properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisers. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each while the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal Plan is in effect may be disadvantageous to the investor because of applicable initial sales charges or CDSCs. An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to IMSC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of each Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Trust does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of a Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Trust reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Trust and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that for each twelve-month period (or portion thereof) that the account is maintained. The Trust may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Trust reserves the right to change these fees from time to time without advance notice. Class A shares of each Fund are made available to Merrill Lynch Daily K Plan (the "Plan") participants at NAV without an initial sales charge if: (i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets invested in broker/dealer funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are made available pursuant to a Service Agreement between Merrill Lynch and the fund's principal underwriter or distributor and in funds advised or managed by MLAM (collectively, the "Applicable Investments"); (ii) the Plan is recordkept on a daily valuation basis by an independent recordkeeper whose services are provided through a contract or alliance arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets, excluding money market funds, invested in Applicable Investments; or (iii) the Plan has 500 or more eligible employees, as determined by Merrill Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. Alternatively, Class B shares of each Fund are made available to Plan participants at NAV without a CDSC if the Plan conforms with the requirements for eligibility set forth in (i) through (iii) above but either does not meet the $3 million asset threshold or does not have 500 or more eligible employees. Plans recordkept on a daily basis by Merrill Lynch or an independent recordkeeper under a contract with Merrill Lynch that are currently investing in Class B shares of any Fund convert to Class A shares once the Plan has reached $5 million invested in Applicable Investments, or 10 years after the date of the initial purchase by a participant under the Plan--the Plan will receive a Plan level share conversion. REDEMPTIONS Shares of each Fund are redeemed at their net asset value next determined after a proper redemption request has been received by IMSC, less any applicable CDSC. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by a Fund is not reasonably practicable or it is not reasonably practicable for a Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of any Fund. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1000 in any Fund for a period of more than 12 months. All accounts below that minimum will be redeemed simultaneously when MIMI deems it advisable. The $1,000 balance will be determined by actual dollar amounts invested by the shareholder, unaffected by market fluctuations. The Trust will notify any such shareholder by certified mail of its intention to redeem such account, and the shareholder shall have 60 days from the date of such letter to invest such additional sums as shall raise the value of such account above that minimum. Should the shareholder fail to forward such sum within 60 days of the date of the Trust's letter of notification, the Trust will redeem the shares held in such account and transmit the redemption in value thereof to the shareholder. However, those shareholders who are investing pursuant to the Automatic Investment Method will not be redeemed automatically unless they have ceased making payments pursuant to the plan for a period of at least six consecutive months, and these shareholders will be given six-months' notice by the Trust before such redemption. Shareholders in a qualified retirement, pension or profit sharing plan who wish to avoid tax consequences must "rollover" any sum so redeemed into another qualified plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. Delivery of the proceeds of a wire redemption request of $250,000 or more may be delayed by a Fund for up to seven days if deemed appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. Each Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, a Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. CONVERSION OF CLASS B SHARES As described in the Prospectus, Class B shares of each Fund will automatically convert to Class A shares of the same Fund, based on the relative net asset values per share of the two classes, no later than the month following the eighth anniversary of the initial issuance of such Class B shares of the Fund occurs. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance shall mean: (1) the date on which such Class B shares were issued, or (2) for Class B shares obtained through an exchange, or a series of exchanges, (subject to the exchange privileges for Class B shares) the date on which the original Class B shares were issued. For purposes of conversion of Class B shares, Class B shares purchased through the reinvestment of dividends and capital gain distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those shares in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through the reinvestment of dividends and capital gain distributions. NET ASSET VALUE The net asset value per share of each Fund is computed by dividing the value of that Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining each Fund's aggregate net assets, receivables are valued at their realizable amounts. Each Fund's liabilities, if not identifiable as belonging to a particular class of the Fund, are allocated among the Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in the Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted sale price on the exchange on which the security is principally traded. If no sale is reported at that time, the average between the last bid and asked price (the "Calculated Mean") is used. Unless otherwise noted herein, the value of a foreign security is determined in its national currency as of the normal close of trading on the foreign exchange on which it is traded or as of the close of regular trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, eastern time, on the day the value of the foreign security is determined. All other securities for which OTC market quotations are readily available are valued at the Calculated Mean. A debt security normally is valued on the basis of quotes obtained from at least two dealers (or one dealer who has made a market in the security) or pricing services that take into account appropriate valuation factors. Interest is accrued daily. Money market instruments are valued at amortized cost, which the Board believes approximates market value. An exchange-traded option is valued at the last sale price on the exchange on which it is principally traded, if available, and otherwise is valued at the last sale price on the other exchange(s). If there were no sales on any exchange, the option shall be valued at the Calculated Mean, if possible, and otherwise at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC option is valued at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of a Fund's portfolio securities occur between the time when a foreign exchange closes and the time when that Fund's net asset value is calculated (see following paragraph), such securities may be valued at fair value as determined by IMI in accordance with procedures approved by the Board. Portfolio securities are valued (and net asset value per share is determined) as of the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) on each day the Exchange is open for trading. The Exchange and the Trust's offices are expected to be closed, and net asset value will not be calculated, on the following national business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days when either or both of a Fund's Custodian or the Exchange close early as a result of a partial holiday or otherwise, the Trust reserves the right to advance the time on that day by which purchase and redemption requests must be received. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on each Fund's net asset value next determined after your instructions are received in proper form by IMSC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since each Fund invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Funds do not price their shares, each Fund's net asset value may change on days when shareholders will not be able to purchase or redeem that Fund's shares. The sale of each Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in a Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to each Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax adviser about the tax consequences to them of investing in any Fund. The Funds are not managed for tax-efficiency. Each Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, each Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies). As a regulated investment company, each Fund generally will not be subject to U.S. Federal income tax on its income and gains that it distributes to shareholders, if at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and the excess of any short-term capital gains over long-term capital losses) for the taxable year is distributed. Each Fund intends to distribute all such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each Fund must distribute during each calendar year, (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirements. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December of the year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year the distributions are declared, rather than the calendar year in which the distributions are received. OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS The taxation of equity options and OTC options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by each Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to the Fund. If a Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by a Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by a Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Some of the options, futures and foreign currency forward contracts in which each Fund may invest may be "section 1256 contracts." Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; however, as described below, foreign currency gains or losses arising from certain section 1256 contracts are ordinary in character. Also, section 1256 contracts held by each Fund at the end of each taxable year (and on certain other dates prescribed in the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. The transactions in options, futures and forward contracts undertaken by each Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains or losses realized by each Fund. In addition, losses realized by each Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to each Fund are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by each Fund, which is taxed as ordinary income when distributed to shareholders. Each Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a fund that did not engage in such transactions. Notwithstanding any of the foregoing, each Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of a Fund's taxable year, if certain conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time a Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of each Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES Each Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If a Fund receives a so-called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which a Fund held the PFIC shares. A Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. Each Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Each Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, each Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. Each Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by each Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, a Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Each Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. Each Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by each Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by each Fund. DISTRIBUTIONS Distributions of investment company taxable income are taxable to a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends paid by a Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received from U.S. corporations by the Fund, may qualify for the dividends received deduction. However, the revised alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by each Fund as capital gain dividends, are taxable to shareholders as long-term capital gains whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares; such distributions are not eligible for the dividends received deduction. Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the net asset value of a share of that Fund on the distribution date. A distribution of an amount in excess of a Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Shareholders will be notified annually as to the U.S. Federal tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the net asset value of the shares received. If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Shareholders should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. DISPOSITION OF SHARES Upon a redemption, sale or exchange of his or her shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and, if so, will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss realized on a redemption sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six-months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having been received by the shareholder with respect to such shares. In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of a Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the same Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by each Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of a Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible and may elect to "pass-through" to its shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of each Fund's taxable year whether the foreign taxes paid by that Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if a Fund makes the election described in the preceding paragraph, the source of that Fund's income flows through to its shareholders. With respect to each Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from each Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of a Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if a Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers. BACKUP WITHHOLDING Each Fund will be required to report to the Internal Revenue Service ("IRS") all taxable distributions as well as gross proceeds from the redemption of that Fund's shares, except in the case of certain exempt shareholders. All such distributions and proceeds will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1) the shareholder fails to furnish a Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amounts required to be withheld. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. This discussion does not purport to deal with all of the tax consequences applicable to each Fund or shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in any Fund. PERFORMANCE INFORMATION Performance information for the classes of shares of each Fund may be compared, in reports and promotional literature, to: (i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors may compare each Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, a widely used independent research firm that ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in each Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. Performance rankings are based on historical information and are not intended to indicate future performance. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of each Fund will be expressed in terms of the average annual compounded rate of return that would cause a hypothetical investment in that class of that Fund made on the first day of a designated period to equal the ending redeemable value ("ERV") of such hypothetical investment on the last day of the designated period, according to the following formula: P(1 + T){superscript n} = ERV Where: P = a hypothetical initial payment of $1,000 to purchase shares of a specific class T = the average annual total return of shares of that class n = the number of years ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. For purposes of the above computation for each Fund, it is assumed that all dividends and capital gains distributions made by that Fund are reinvested at net asset value in additional shares of the same class during the designated period. In calculating the ending redeemable value for Class A shares and assuming complete redemption at the end of the applicable period, the maximum 5.75% sales charge is deducted from the initial $1,000 payment and, for Class B and Class C shares, the applicable CDSC imposed upon redemption of Class B or Class C shares held for the period is deducted. Standardized Return quotations for each Fund do not take into account any required payments for federal or state income taxes. Standardized Return quotations for Class B shares for periods of over eight years will reflect conversion of the Class B shares to Class A shares at the end of the eighth year. Standardized Return quotations are determined to the nearest 1/100 of 1%. Each Fund may, from time to time, include in advertisements, promotional literature or reports to shareholders or prospective investors total return data that are not calculated according to the formula set forth above ("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in calculating Non-Standardized Return; a sales charge, if deducted, would reduce the return. The following tables summarize the calculation of Standardized and Non-Standardized Return for the Class A, Class B, Class C and Class I (where applicable) shares of each Fund for the periods indicated. In determining the average annual total return for a specific class of shares of each Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of each Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of the Fund. IVY ASIA PACIFIC FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (and Class A, Class B and Class C shares of the Fund) was January 1, 1997. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ]% and [ ]%, respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ]% and [ ]%, respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ]% and [ ]%, respectively. [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 199 and the one year ended December 31, 1999 would have been [ ]% and [ ]%, respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ]% and [ ]%, respectively. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ]% and [ ]%, respectively. IVY CHINA REGION FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999 Five years ended December 31, 1999 Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999 Five years ended December 31, 1999 Inception [#] to year ended December 31, 1999[7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (and Class A and Class B shares of the Fund) was October 22, 1993. The inception date for Class C shares was April 30, 1996. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year and five years ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year and five years ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ] respectively. (Since the inception date for Class C shares was April 30, 1996, there were no outstanding Class C shares for the duration of the five year period ended December 31, 1999.) [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year and five years ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year and five years ended December 31, 1999 would have been [ ], respectively [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no Class C shares outstanding for the five year period ended December 31, 1999.) [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY DEVELOPING NATIONS FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999: Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999: Inception [#] to year ended December 31, 1999[7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (Class A and Class B shares) was November 1, 1994. The inception date for Class C shares of the Fund was April 30, 1996. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1998 would have been[ ], respectively. [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY EUROPEAN OPPORTUNITIES FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Inception [#] to year ended December 31, 1999[8]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund was May 3, 1999. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 would have been [ ]. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 would have been [ ]. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 would have been [ ]. [ ] Class I shares are not subject to an initial sales charge or a CDSC; therefore the Non-Standardized and Standardized Return figures would be identical. [However, there were no outstanding Class I shares during the periods indicated.] [5] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 would have been [ ]. [6] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 would have been [ ]. [7] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 would have been [ ]. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY GLOBAL FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999 Five years ended December 31, 1999 Inception [#] to year ended December 31, 1999[8]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999 Five years ended December 31, 1999 Inception [#] to year ended December 31, 1999[8]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (Class A shares) was April 18, 1991. The inception dates for the Class B and Class C shares of the Fund were April 1, 1994 and April 30, 1996, respectively. Until December 31, 1994, Mackenzie Investment Management Inc. served as investment adviser to the Fund. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the five year period ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no outstanding Class C shares for the duration of the five year period ended December 31, 1999.) [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no outstanding Class C shares for the duration of the five year period ended December 31, 1999.) [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY GLOBAL NATURAL RESOURCES FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999: Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999: Inception [#] to year ended December 31, 1999[7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund was January 1, 1997. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY GLOBAL SCIENCE & TECHNOLOGY FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999: [8] NON-STANDARDIZED RETURN[**] CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999:[8] [*] The Standardization Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. Class I shares are not subject to an initial sales charge or a CDSC; therefore, the Non-Standardized Return Figures would be identical to the Standardized Return Figures. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (and Class A, Class B, Class C and Class I shares of the Fund) was July 22, 1996. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [4] Class I shares are not subject to an initial sales charge or a CDSC; therefore the Non-Standardized and Standardized Return figures would be identical. However, there were no outstanding Class I shares during the periods indicated. [5] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [7] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY INTERNATIONAL FUND II STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999[8]: NON-STANDARDIZED RETURN[**] CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999[8]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. Class I shares are not subject to an initial sales change or to a CDSC; therefore, the Non-Standardized Return Figures would be identical to the Standardized Return Figures. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (and Class A, Class B, Class C and Class I shares of the Fund) was May 13, 1997. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [4] Class I shares are not subject to an initial sales charge or a CDSC; therefore the Non-Standardized and Standardized Return figures would be identical. However, there were no outstanding Class I shares during the periods indicated. [5] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [7] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY INTERNATIONAL SMALL COMPANIES FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999: NON-STANDARDIZED RETURN[**] CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999: [*] The Standardization Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for Ivy International Small Companies Fund (and Class A, Class B, Class C and Class I shares of the Fund) was January 1, 1997. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [4] Class I shares are not subject to an initial sales charge or a CDSC; therefore the Non-Standardized and Standardized Return figures would be identical. However, there were no outstanding Class I shares during the periods indicated. [5] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [7] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. IVY PAN-EUROPE FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999: Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999: Inception [#] to year ended December 31, 1999[7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (Class A and Class B shares) was May 13, 1997. Class C shares were first offered on January 29, 1998. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 would have been [ ]. [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 would have been [ ]. [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY SOUTH AMERICA FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999 Inception [#] to year ended December 31, 1999[7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (Class A and Class B shares) was November 1, 1994. The inception date for Class C shares was April 30, 1996. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ended December 31, 1999 would have been [ ], respectively. [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of a particular Fund for a specified period. Cumulative total return quotations reflect changes in the price of a Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in Fund shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of a Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. IVY ASIA PACIFIC FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. SINCE INCEPTION[*] ONE YEAR Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. SINCE INCEPTION[*] ONE YEAR Class A Class B Class C - --------------------------- [*] The inception date for the Fund (Class A, Class B and Class C shares) was January 1, 1997. IVY CHINA REGION FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR FIVE YEARS SINCE INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR FIVE YEARS SINCE INCEPTION[*] Class A Class B Class C - --------------------------- [*] The inception date for the Fund (Class A and Class B shares) was October 23, 1993. The inception date for Class C shares of the Fund was April 30, 1996. IVY DEVELOPING NATIONS FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. SINCE ONE YEAR INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. SINCE ONE YEAR INCEPTION[*] Class A Class B Class C - --------------------------- [*] The inception date for the Fund (Class A and Class B shares) was November 1, 1994. The inception date for Class C shares was April 30, 1996. ****** IVY EUROPEAN OPPORTUNITIES FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. SINCE INCEPTION[*] Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. SINCE INCEPTION[*] Class A Class B Class C Class I - --------------------------- [*] The inception date for the Fund was May 3, 1999. IVY GLOBAL FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR FIVE YEARS SINCE INCEPTION Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR FIVE YEARS SINCE INCEPTION[*] Class A Class B Class C - --------------------------- [*] The inception date for the was (Class A shares of the Fund) was April 18, 1993; the inception date for Class B shares of the Fund was April 1, 1994; and the inception date for Class C shares of the Fund was April 30, 1996. Until December 31, 1994, Mackenzie Investment Management Inc. served as investment adviser to the Fund. IVY GLOBAL NATURAL RESOURCES FUND The following table summarizes the calculation of Cumulative Total Return for Ivy Global Natural Resources Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for Ivy Global Natural Resources Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C - --------------------------- [*] The inception date for the Fund was January 1, 1997. IVY GLOBAL SCIENCE & TECHNOLOGY FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C Class I - --------------------------- [*] The inception date for the Fund (Class A, Class B, Class C and I shares) was July 22, 1996. IVY INTERNATIONAL FUND II The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION [*] Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION [*] Class A Class B Class C Class I - --------------------------- [*] The inception date for the Fund (Class A, Class B, Class C and Class I shares) was May 13, 1997. IVY INTERNATIONAL SMALL COMPANIES FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION [*] Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION [*] Class A Class B Class C Class I - --------------------------- [*] The inception date for the Fund (Class A, Class B, Class C and Class I shares) was January 1, 1997. IVY PAN-EUROPE FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C - --------------------------- [*] The inception date for the Ivy Pan-Europe Fund (Class A and Class B shares) was May 13, 1997. Class C shares were first offered on January 29, 1998. IVY SOUTH AMERICA FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. SINCE ONE YEAR INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. SINCE ONE YEAR INCEPTION[*] Class A Class B Class C - --------------------------- [*] The inception date for the Fund (Class A and Class B shares) was November 1, 1994. The inception date for Class C shares of the Fund was April 30, 1996. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of that Fund's portfolio and operating expenses of that Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding a Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of each Fund's shares and the risks associated with each Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. Each Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS Each Fund's portfolio of investments as of December 31, 1999, Statement of Assets and Liabilities as of December 31, 1999, statement of operations for the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for the fiscal year ended December 31, 1999, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in each Fund's December 31, 1999 Annual Report to shareholders, are incorporated by reference into this SAI. APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New York, 1997).] MOODY'S: (a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality, carrying the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa are judged by Moody's to be of high quality by all standards. Aa bonds are rated lower than Aaa bonds because margins of protection may not be as large as those of Aaa bonds, or fluctuations of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than those applicable to Aaa securities. Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa by Moody's are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. (b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Issuers within this Prime category may be given ratings 1, 2 or 3, depending on the relative strengths of these factors. The designation of Prime-1 indicates the highest quality repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have a strong ability for repayment while issuers voted Prime-3 are deemed to have an acceptable ability for repayment. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings described below may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA is judged by S&P to have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A by S&P has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to pay interest and repay principal. Although such bonds normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than debt in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. The commercial paper rating A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. For commercial paper with an A-2 rating, the capacity for timely payment on issues is satisfactory, but not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment, but are more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. The C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. IVY ASIA PACIFIC FUND IVY CHINA REGION FUND IVY DEVELOPING NATIONS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL FUND II IVY INTERNATIONAL SMALL COMPANIES FUND IVY PAN-EUROPE FUND IVY SOUTH AMERICA FUND series of IVY FUND Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION ADVISOR CLASS SHARES May 1, 2000 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of twenty-one fully managed portfolios, each of which (except for Ivy South America Fund and Ivy International Strategic Bond Fund) is diversified. This Statement of Additional Information ("SAI") relates to the Advisor Class shares of Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy Pan-Europe Fund and Ivy South America Fund (each a "Fund"). The other ten portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Advisor Class shares of the Funds dated May 1, 2000 (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. Advisor Class shares are only offered to certain investors (see Prospectus). The Funds also offer Class A, B and C shares (and, in the case of Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, and Ivy International Small Companies Fund, Class I shares), which are described in a separate prospectus and SAI that may also be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 456-5111 INVESTMENT ADVISER (for Ivy Global Natural Resources Fund) Mackenzie Financial Corporation ("MFC") 150 Bloor Street West Suite 400 Toronto, Ontario CANADA M5S3B5 Telephone: (416) 922-5322 TABLE OF CONTENTS GENERAL INFORMATION..........................................................3 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................3 IVY EUROPEAN OPPORTUNITIES FUND.....................................4 INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND.........5 IVY GLOBAL FUND.....................................................7 INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND.........................8 IVY GLOBAL NATURAL RESOURCES FUND..................................10 INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND..........................................11 IVY GLOBAL SCIENCE & TECHNOLOGY FUND...............................13 INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND.......................................14 IVY INTERNATIONAL FUND II..........................................16 INVESTMENT RESTRICTIONS FOR........................................17 IVY INTERNATIONAL SMALL COMPANIES FUND.............................19 INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND............................................20 IVY PAN-EUROPE FUND................................................22 INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND....................23 COMMON STOCKS......................................................25 CONVERTIBLE SECURITIES.............................................25 SMALL COMPANIES....................................................26 NATURAL RESOURCES AND PHYSICAL COMMODITIES.........................26 DEBT SECURITIES....................................................27 IN GENERAL................................................27 INVESTMENT-GRADE DEBT SECURITIES..........................27 LOW-RATED DEBT SECURITIES.................................28 U.S. GOVERNMENT SECURITIES............................29 ZERO COUPON BONDS.........................................30 FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.............................................30 ILLIQUID SECURITIES................................................31 FOREIGN SECURITIES.................................................31 DEPOSITORY RECEIPTS................................................32 EMERGING MARKETS...................................................33 FOREIGN SOVEREIGN DEBT OBLIGATIONS........................34 BRADY BONDS...............................................35 FOREIGN CURRENCIES.................................................36 FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................36 OTHER INVESTMENT COMPANIES.........................................37 REPURCHASE AGREEMENTS..............................................37 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................38 COMMERCIAL PAPER...................................................38 BORROWING..........................................................38 WARRANTS 39 REAL ESTATE INVESTMENT TRUSTS (REITS)..............................39 OPTIONS TRANSACTIONS...............................................39 IN GENERAL................................................39 WRITING OPTIONS ON INDIVIDUAL SECURITIES..................40 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............41 RISKS OF OPTIONS TRANSACTIONS.............................41 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................42 IN GENERAL................................................42 FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS........................................44 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........45 SECURITIES INDEX FUTURES CONTRACTS.................................46 RISKS OF SECURITIES INDEX FUTURES.........................46 COMBINED TRANSACTIONS.....................................47 PORTFOLIO TURNOVER..........................................................48 TRUSTEES AND OFFICERS.......................................................48 PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...........................61 INVESTMENT ADVISORY AND OTHER SERVICES......................................62 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............62 DISTRIBUTION SERVICES..............................................64 RULE 18F-3 PLAN...........................................65 CUSTODIAN..........................................................65 FUND ACCOUNTING SERVICES...........................................66 TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................66 ADMINISTRATOR......................................................67 AUDITORS 67 BROKERAGE ALLOCATION........................................................67 CAPITALIZATION AND VOTING RIGHTS............................................68 SPECIAL RIGHTS AND PRIVILEGES...............................................70 AUTOMATIC INVESTMENT METHOD........................................70 EXCHANGE OF SHARES.................................................71 RETIREMENT PLANS...................................................71 INDIVIDUAL RETIREMENT ACCOUNTS............................72 ROTH IRAS.................................................73 QUALIFIED PLANS...........................................74 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")..........75 SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..................75 SIMPLE PLANS..............................................75 SYSTEMATIC WITHDRAWAL PLAN.........................................75 GROUP SYSTEMATIC INVESTMENT PROGRAM................................76 REDEMPTIONS.................................................................77 NET ASSET VALUE.............................................................78 TAXATION 79 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............80 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............81 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................81 DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................82 DISTRIBUTIONS......................................................83 DISPOSITION OF SHARES..............................................83 FOREIGN WITHHOLDING TAXES..........................................84 BACKUP WITHHOLDING.................................................85 PERFORMANCE INFORMATION.....................................................85 AVERAGE ANNUAL TOTAL RETURN........................................86 CUMULATIVE TOTAL RETURN............................................87 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION..............88 FINANCIAL STATEMENTS........................................................88 APPENDIX A..................................................................90 GENERAL INFORMATION Each Fund (except Ivy South America Fund) is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. Ivy South America Fund is organized as a separate, non-diversified portfolio of the Trust. Ivy Asia Pacific Fund commenced operations on January 1, 1997. Ivy China Region Fund commenced operations (Class A and Class B shares) on October 22, 1993; Class C commenced operations on April 30, 1996. Ivy Developing Nations Fund commenced operations (Class A and Class B shares) on November 1, 1994; Class C commenced operations on April 30, 1996. Ivy European Opportunities Fund commenced operations on May 3, 1999. Ivy Global Fund commenced operations (Class A shares) on April 18, 1991; Class B commenced operations on April 1, 1994; and Class C commenced operations on April 30, 1996. Ivy Global Natural Resources Fund and Ivy International Small Companies Fund commenced operations on January 1, 1997. Ivy Global Science & Technology Fund commenced operations on July 22, 1996. Ivy International Fund II and Ivy Pan-Europe Fund (Class A and Class B shares) commenced operations on May 13, 1997. Class C shares of Ivy Pan-Europe Fund were first issued on January 28, 1998. Ivy South America Fund commenced operations (Class A and Class B shares) on November 1, 1994; Class C commenced operations on April 30, 1996. Descriptions in this SAI of a particular investment practice or technique in which any Fund may engage or a financial instrument which any Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing each Fund's portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in a Fund's overall investment strategy, from time to time have a material impact on that Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund's asset level or other circumstances beyond a Fund's control, will not be considered a violation. IVY ASIA PACIFIC FUND The Fund's principal investment objective is long-term growth. Consideration of current income is secondary to this principal objective. Under normal circumstances the Fund invests at least 65% of its total assets in securities issued in Asia-Pacific countries, which for purposes of this SAI are defined to include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. Securities of Asia-Pacific issuers include: (a) securities of companies organized under the laws of an Asia-Pacific country or for which the principal securities trading market is in the Asia-Pacific region; (b) securities that are issued or guaranteed by the government of an Asia-Pacific country, its agencies or instrumentalities, political subdivisions or the country's central bank; (c) securities of a company, wherever organized, where at least 50% of the company's non-current assets, capitalization, gross revenue or profit in any one of the two most recent fiscal years represents (directly or indirectly through subsidiaries) assets or activities located in the Asia-Pacific region; and (d) any of the preceding types of securities in the form of depository shares. The Fund may participate in markets throughout the Asia-Pacific region, and it is expected that the Fund will be invested at all times in at least three Asia-Pacific countries. As a fundamental policy, the Fund does not concentrate its investments in any particular industry. The Fund may invest up to 35% of its assets in investment-grade debt securities of government or corporate issuers in emerging market countries, equity securities and investment grade debt securities of issuers in developed countries (including the United States), warrants, and cash or cash equivalents, such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive purposes, the Fund may invest without limit in such instruments. The Fund may also invest up to 5% of its net assets in zero coupon bonds, and in debt securities rated Ba or below by Moody's Investor Service, Inc. ("Moody's") or BB or below by Standard & Poor's Ratings Services ("S&P"), or if unrated, are considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, Ivy Asia Pacific Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies that invest in securities issued in Asia-Pacific countries in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. The Fund may write or buy straddles or spreads. For hedging purposes only, the Fund may engage in transactions in stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY ASIA PACIFIC FUND Ivy Asia Pacific Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (ii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (iv) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (v) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vi) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (vii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Asia Pacific Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (ii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that the Fund may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (iii) sell securities short, except for short sales "against the box"; (iv) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund" total assets; (v) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's investment adviser for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; or (vi) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures. IVY CHINA REGION FUND Ivy China Region Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. The Fund seeks to meet its objective primarily by investing in the equity securities of companies that are expected to benefit from the economic development and growth of China, Hong Kong and Taiwan. A significant percentage of the Fund's assets may also be invested in the securities markets of South Korea, Singapore, Malaysia, Thailand, Indonesia and the Philippines (collectively, with China, Hong Kong and Taiwan, the "China Region"). The Fund normally invests at least 65% of its total assets in "Greater China growth companies," defined as companies that (a) that are organized in or for which the principal securities trading markets are in the China Region; (b) that have at least 50% of their assets in one or more China Region countries or derive at least 50% of their gross sales revenues or profits from providing goods or services to or from within one or more China Region countries; or (c) that have at least 35% of their assets in China, Hong Kong or Taiwan, derive at least 35% of their gross sales revenues or profits from providing goods or services to or from within these three countries, or have significant manufacturing or other operations in these countries. IMI's determination as to whether a company qualifies as a Greater China growth company is based primarily on information contained in financial statements, reports, analyses and other pertinent information (some of which may be obtained directly from the company). The Fund may invest 25% or more of its total assets in the securities of issuers located in any one China Region country, and currently expects to invest more than 50% of its total assets in Hong Kong. The balance of the Fund's assets ordinarily are invested in (i) certain investment-grade debt securities and (ii) the equity securities of "China Region associated companies," which are companies that do not meet the definition of a Greater China growth company, but whose current or expected performance, based on certain identified factors (such as the growth trends in the location of a company's assets and the sources of its revenues and profits), is judged by IMI to be strongly associated with the China Region. The investment-grade debt securities in which the Fund may invest include (a) obligations of the U.S. Government or its agencies or instrumentalities, (b) obligations of U.S. banks and other banks organized and existing under the laws of Hong Kong, Taiwan or countries that are member of the Organization for Economic Cooperation and Development ("OECD"), (c) obligations denominated in any currency issued by international development institutions and Hong Kong, Taiwan and OECD member governments and their agencies and instrumentalities, and (d) corporate bonds rated Baa or higher by Moody's or BBB or higher by S&P (or if unrated, are considered by IMI to be of comparable quality), as well as repurchase agreements with respect to any of the foregoing instruments. The Fund may also invest in zero coupon bonds. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or, if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. Ivy China Region Fund may invest in sponsored or unsponsored ADRs, GDRs, ADSs, and GDSs, warrants, and securities issued on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. For temporary defensive purposes and during periods when IMI believes that circumstances warrant, the Fund may reduce its position in Greater China growth companies and Greater China associated companies and increase its investment in cash and liquid debt securities, such as U.S. Government securities, bank obligations, commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may also borrow up to 10% of the value of its total assets from banks. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in stock index futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY CHINA REGION FUND Ivy China Region Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval (as defined in the 1940 Act) of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy China Region Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (vii) purchase securities on margin; (viii) sell securities short; or (ix) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940. IVY DEVELOPING NATIONS FUND Ivy Developing Nations Fund's principal objective is long-term growth. Consideration of current income is secondary to this principal objective. In pursuing its objective, the Fund invests primarily in the equity securities of companies that IMI believes will benefit from the economic development and growth of emerging markets. The Fund considers countries having emerging markets to be those that (i) are generally considered to be "developing" or "emerging" by the World Bank and the International Finance Corporation, or (ii) are classified by the United Nations (or otherwise regarded by their authorities) as "emerging." Under normal market conditions, the Fund invests at least 65% of its total assets in equity securities (including common and preferred stocks, convertible debt obligations, warrants, options (subject to the restrictions set forth below), rights, and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs that are listed on stock exchanges or traded over-the-counter) of "Emerging Market growth companies," which are defined as companies (a) for which the principal securities trading market is an emerging market (as defined above), (b) that each (alone or on a consolidated basis) derives 50% or more of its total revenue either from goods, sales or services in emerging markets, or (c) that are organized under the laws of (and with a principal office in) an emerging market country. The Fund normally invests its assets in the securities of issuers located in at least three emerging market countries, and may invest 25% or more of its total assets in the securities of issuers located in any one country. IMI's determination as to whether a company qualifies as an Emerging Market growth company is based primarily on information contained in financial statements, reports, analyses and other pertinent information (some of which may be obtained directly from the company). For purposes of capital appreciation, Ivy Developing Nations Fund may invest up to 35% of its total assets in (i) debt securities of government or corporate issuers in emerging market countries, (ii) equity and debt securities of issuers in developed countries (including the United States), and (iii) cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive purposes, the Fund may invest without limit in such instruments. The Fund may also invest in zero coupon bonds and purchase securities on a "when-issued" or firm commitment basis. The Fund will not invest more than 20% of its total assets in debt securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, the Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY DEVELOPING NATIONS FUND Ivy Developing Nations Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Unless otherwise indicated, Ivy Developing Nations Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; (vii) purchase securities on margin; (viii) sell securities short; or (ix) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act a brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940. Under the 1940 Act, the Fund is permitted, subject to the above investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restrictions (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY EUROPEAN OPPORTUNITIES FUND The Fund's investment objective is long-term capital growth by investing in the securities markets of Europe. The Fund's subadviser, Henderson Investment Management Limited ("Henderson Investors"), will invest the Fund's assets in the securities of European companies, including those companies operating in the emerging markets of Europe and small capitalization companies operating in the developed markets of Europe. The Fund may also invest in larger capitalization European companies and European companies which have been subject to special circumstances, e.g., privatized companies or companies which provide exceptional value. Although the majority of the Fund's assets will be invested in equity securities, the Fund may also invest in cash, short-term or long-term fixed income securities issued by corporations and governments of Europe if considered appropriate in relation to the then current economic or market conditions in any country. The Fund seeks to achieve its investment objective by investing primarily in the equity securities of companies domiciled or otherwise doing business (as described below) in European countries. Under normal circumstances, the Fund will invest at least 65% of its total assets in the equity securities of "European companies," which include any issuer (a) that is organized under the laws of a European country; (b) that derives 50% or more of its total revenues from goods produced or sold, investments made or services performed in Europe; or (c) for which the principal trading market is in Europe. The equity securities in which the Fund may invest include common stock, preferred stock and common stock equivalents such as warrants and convertible debt securities. These may include securities issued pursuant to initial public offerings ("IPOs"). The Fund may engage in short-term trading. The Fund may also invest in sponsored or unsponsored American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs"), European Depository Shares ("EDSs") and Global Depository Shares ("GDSs"). The Fund does not expect to concentrate its investments in any particular industry. The Fund may invest up to 35% of its net assets in debt securities, but will not invest more than 20% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P or, if unrated, considered by Henderson Investors to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may purchase Brady Bonds and other sovereign debt of countries that have restructured or are in the process of restructuring their sovereign debt. The Fund may also purchase securities on a "when-issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. In addition, the Fund may invest up to 5% of its net assets in zero coupon bonds. For temporary defensive purposes or when Henderson Investors believes that circumstances warrant, the Fund may invest without limit in U.S. Government securities, investment grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P or, if unrated, considered by Henderson Investors to be of comparable quality), warrants, and cash or cash equivalents such as domestic or foreign bank obligations (including certificates of deposit, time deposits and bankers' acceptances), short-term notes, repurchase agreements, and domestic or foreign commercial paper. The Fund may borrow money in accordance with the provisions of the 1940 Act. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. For hedging purposes, the Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index, interest rate and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND Ivy European Opportunities Fund's investment objective, as set forth in the Prospectus under "Investment Objective and Policies," and the investment restrictions set forth below are fundamental policies of the Fund and may not be changed with respect to the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy European Opportunities Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in the subadviser's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market or to other factors, is liquid; (ii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (iii) purchase or sell real estate limited partnership interests; (iv) sell securities short, except for short sales "against the box"; (v) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's subadviser, for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (vi) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; (vii) make investments in securities for the purpose of exercising control over or management of the issuer; or (viii) invest in interests in oil, gas and/or mineral exploration or development programs (other than securities of companies that invest in or sponsor such programs). IVY GLOBAL FUND Ivy Global Fund seeks long-term capital growth through a flexible policy of investing in stocks and debt obligations of companies and governments of any nation. Any income realized will be incidental. Under normal conditions, the Fund will invest at least 65% of its total assets in the common stock of companies throughout the world, with at least three different countries (one of which may be the United States) represented in the Fund's overall portfolio holdings. Although the Fund generally invests in common stock, it may also invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, and investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), including corporate bonds, notes, debentures, convertible bonds and zero coupon bonds. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may invest in equity real estate investment trusts, warrants, and securities issued on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. The Fund may not invest more than 5% of its total assets in restricted securities. For temporary defensive purposes and during periods when IMI believes that circumstances warrant, Ivy Global Fund may invest without limit in U.S. Government securities, obligations issued by domestic or foreign banks (including certificates of deposit, time deposits and bankers' acceptances), and domestic or foreign commercial paper (which, if issued by a corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company that at the time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase agreements, and, for temporary or emergency purposes, may borrow up to 10% of the value of its total assets from banks. The Fund may purchase put and call options on stock indices, provided the premium paid for such options does not exceed 10% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 50% of the value of its net assets, and may write covered call options so long as not more than 20% of the Fund's net assets is subject to being purchased upon the exercise of the calls. The Fund may also write and buy straddles and spreads. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 20% of its total assets. INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND Ivy Global Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by its Prospectus. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Global Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas or mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; (v) make investments in securities for the purpose of exercising control over or management of the issuer; (vi) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Manager for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (vii) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for extraordinary or emergency purposes. All borrowings will be repaid before any additional investments are made; (viii) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities restricted as to disposition under the Federal securities laws; or (ix) purchase securities of another investment company, except in connection with a merger, consolidation, reorganization or acquisition of assets, and except that the Fund may invest in securities of other investment companies subject to the restrictions in Section 12(d)(1) of the Investment Company Act of 1940 (the "1940 Act"). The Fund does not interpret fundamental restriction (v) to prohibit investment in real estate investment trusts. IVY GLOBAL NATURAL RESOURCES FUND Ivy Global Natural Resources Fund's investment objective is long-term growth. Any income realized will be incidental. Under normal conditions, the Fund invests at least 65% of its total assets in the equity securities of companies throughout the world that own, explore or develop natural resources and other basic commodities, or supply goods and services to such companies. Under this investment policy, at least three different countries (one of which may be the United States) will be represented in the Fund's overall portfolio holdings. "Natural resources" generally include precious metals (such as gold, silver and platinum), ferrous and nonferrous metals (such as iron, aluminum and copper), strategic metals (such as uranium and titanium), coal, oil, natural gases, timber, undeveloped real property and agricultural commodities. Although the Fund generally invests in common stock, it may also invest in preferred stock, securities convertible into common stock and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs. The Fund may also invest directly in precious metals and other physical commodities. In selecting the Fund's investments, MFC will seek to identify securities of companies that, in MFC's opinion, appear to be undervalued relative to the value of the companies' natural resource holdings. MFC believes that certain political and economic changes in the global environment in recent years have had and will continue to have a profound effect on global supply and demand of natural resources, and that rising demand from developing markets and new sources of supply should create attractive investment opportunities. In selecting the Fund's investments, MFC will seek to identify securities of companies that, in MFC's opinion, appear to be undervalued relative to the value of the companies' natural resource holdings. For temporary defensive purposes, Ivy Global Natural Resources Fund may invest without limit in cash or cash equivalents, such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. For hedging purposes only, the Fund may engage in transactions in (and options on) foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy puts, calls, straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND Ivy Global Natural Resources Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in (a) commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI and (b) commodities relating to natural resources, as described in the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Global Natural Resources Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (ii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the 1940 Act and rules thereunder; (iii) purchase or sell interests in oil, gas or mineral leases (other than securities of companies that invest in or sponsor such programs); (iv) invest in interests in oil, gas and/or mineral exploration or development programs; (v) sell securities short, except for short sales "against the box;" (vi) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund" total assets; (vii) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's investment adviser for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (viii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; or (ix) make investments in securities for the purpose of exercising control over or management of the issuer. Under the 1940 Act, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY GLOBAL SCIENCE & TECHNOLOGY FUND Ivy Global Science & Technology Fund's principal investment objective is long-term capital growth. Any income realized will be incidental. Under normal conditions, the Fund will invest at least 65% of its total assets in the common stock of companies that are expected to benefit from the development, advancement and use of science and technology. Under this investment policy, at least three different countries (one of which may be the United States) will be represented in the Fund's overall portfolio holdings. Industries likely to be represented in the Fund's portfolio include computers and peripheral products, software, electronic components and systems, telecommunications, media and information services, pharmaceuticals, hospital supply and medical devices, biotechnology, environmental services, chemicals and synthetic materials, and defense and aerospace. The Fund may also invest in companies that are expected to benefit indirectly from the commercialization of technological and scientific advances. In recent years, rapid advances in these industries have stimulated unprecedented growth. While this is no guarantee of future performance, IMI believes that these industries offer substantial opportunities for long-term capital appreciation. Investments made by the Fund may include securities issued pursuant to IPOs. The Fund may also engage in short-term trading. Although the Fund generally invests in common stock, it may also invest in preferred stock, securities convertible into common stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), including corporate bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may also invest up to 5% of its net assets in debt securities that are rated Ba or below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may invest in warrants, purchase securities on a "when-issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest (i) in other investment companies in accordance with the provisions of the 1940 Act and (ii) up to 15% of its net assets in illiquid securities. For temporary defensive purposes and during periods when IMI believes that circumstances warrant, Ivy Global Science & Technology Fund may invest without limit in U.S. Government securities, obligations issued by domestic or foreign banks (including certificates of deposit, time deposits and bankers' acceptances), and domestic or foreign commercial paper (which, if issued by a corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company that at the time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase agreements, and, for temporary or emergency purposes, may borrow up to 10% of the value of its total assets from banks. The Fund may purchase put and call options on stock indices and on individual securities, provided the premium paid for such options does not exceed 10% of the value of the Fund's net assets. The Fund may also sell covered put options with respect to up to 50% of the value of its net assets, and may write covered call options so long as not more than 20% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 20% of the value of its total assets. INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND Ivy Global Science & Technology Fund's investment objective, as set forth in the "Summary" section of the Prospectus, and the investment restrictions set forth below are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the Fund's outstanding voting shares. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Global Science & Technology Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control or management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that a Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (v) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for emergency purposes. (vi) purchase securities on margin; (vii) sell securities short, except for short sales "against the box"; or (viii) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act. Under the 1940 Act, the Fund is permitted, subject to the above investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY INTERNATIONAL FUND II Ivy International Fund II's principal objective is long-term capital growth primarily through investment in equity securities. Consideration of current income is secondary to this principal objective. It is anticipated that at least 65% of the Fund's total assets will be invested in common stocks (and securities convertible into common stocks) principally traded in European, Pacific Basin and Latin American markets. Under this investment policy, at least three different countries (other than the United States) will be represented in the Fund's overall portfolio holdings. For temporary defensive purposes, the Fund may also invest in equity securities principally traded in U.S. markets. IMI, the Fund's investment manager, invests the Fund's assets in a variety of economic sectors, industry segments and individual securities in order to reduce the effects of price volatility in any one area and to enable shareholders to participate in markets that do not necessarily move in concert with U.S. markets. IMI seeks to identify rapidly expanding foreign economies, and then searches out growing industries and corporations, focusing on companies with established records. Individual securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. Companies in which investments are made will generally have at least $1 billion in capitalization and a solid history of operations. When economic or market conditions warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), preferred stocks, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may borrow up to 10% of the value of its total assets from banks. The Fund may also purchase securities on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL FUND II Ivy International Fund II's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy International Fund II has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) sell securities short, except for short sales, "against the box;" (v) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for emergency purposes. (vi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940; (vii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; or (viii) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidations. Ivy International Fund II will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. Under the Investment Company Act of 1940, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. IVY INTERNATIONAL SMALL COMPANIES FUND Ivy International Small Companies Fund's principal investment objective is long-term growth primarily through investment in foreign equity securities. Consideration of current income is secondary to this principal objective. Under normal circumstances the Fund invests at least 65% of its total assets in common and preferred stocks (and securities convertible into common stocks) of foreign issuers having total market capitalization of less than $1 billion. Under this investment policy, at least three different countries (other than the United States) will be represented in the Fund's overall portfolio holdings. For temporary defensive purposes, the Fund may also invest in equity securities principally traded in the United States. The Fund will invest its assets in a variety of economic sectors, industry segments and individual securities in order to reduce the effects of price volatility in any area and to enable shareholders to participate in markets that do not necessarily move in concert with the U.S. market. The factors that IMI considers in determining the appropriate distribution of investments among various countries and regions include prospects for relative economic growth, expected levels of inflation, government policies influencing business conditions and the outlook for currency relationships. The Fund may purchase securities issued pursuant to IPOs. The Fund may engage in short-term trading. In selecting the Fund's investments, IMI will seek to identify securities that are attractively priced relative to their intrinsic value. The intrinsic value of a particular security is analyzed by reference to characteristics such as relative price-earnings ratio, dividend yield and other relevant factors (such as applicable financial, tax, social and political conditions). When economic or market conditions warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities, zero coupon bonds, preferred stocks, warrants, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may also invest up to 5% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, Ivy International Small Companies Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND Ivy International Small Companies Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy International Small Companies Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (v) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; (vi) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that the Fund may purchase shares of other investment companies subject to such restrictions as may be imposed by the 1940 Act and rules thereunder; (vii) sell securities short, except for short sales "against the box;" (viii) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's investment adviser for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (ix) make investments in securities for the purpose of exercising control over or management of the issuer; or (x) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures. IVY PAN-EUROPE FUND Ivy Pan-Europe Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. The Fund seeks to achieve its investment objective by investing primarily in the equity securities of companies domiciled or otherwise doing business (as described below) in European countries. Under normal circumstances, the Fund will invest at least 65% of its total assets in the equity securities of "European companies," which include any issuer (a) that is organized under the laws of a European country; (b) that derives 50% or more of its total revenues from goods produced or sold, investments made or services performed in Europe; or (c) for which the principal trading market is in Europe. The Fund may also invest up to 35% of its total assets in the equity securities of issuers domiciled outside of Europe. The equity securities in which the Fund may invest include common stock, preferred stock and common stock equivalents such as warrants and convertible debt securities. The Fund may also invest in sponsored or unsponsored ADRs, European Depository Receipts ("EDRs"), GDRs, ADSs, European Depository Shares ("EDSs") and GDSs. As a fundamental policy, the Fund does not concentrate its investments in any particular industry. The Fund may invest up to 35% of its net assets in debt securities, but will not invest more than 20% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may also purchase securities on a "when issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. In addition, the Fund may invest up to 5% of its net assets in zero coupon bonds. For temporary defensive purposes or when IMI believes that circumstances warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), warrants, and cash or cash equivalents such as domestic or foreign bank obligations (including certificates of deposit, time deposits and bankers' acceptances), short-term notes, repurchase agreements, and domestic or foreign commercial paper (which, if issued by a corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company that at the time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P). For temporary or emergency purposes, Ivy Pan-Europe Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND Ivy Pan-Europe Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Pan-Europe Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (v) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; (vi) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (vii) sell securities short, except for short sales "against the box"; (viii) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of IMI, for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (ix) make investments in securities for the purpose of exercising control over or management of the issuer; or (x) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures. IVY SOUTH AMERICA FUND Ivy South America Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. Under normal conditions the Fund invests at least 65% of its total assets in securities issued in South America. Securities of South American issuers include (a) securities of companies organized under the laws of a South American country or for which the principal securities trading market is in South America; (b) securities that are issued or guaranteed by the government of a South American country, its agencies or instrumentalities, political subdivisions or the country's central bank; (c) securities of a company, wherever organized, where at least 50% of the company's non-current assets, capitalization, gross revenue or profit in any one of the two most recent fiscal years represents (directly or indirectly through subsidiaries) assets or activities located in South America; or (d) any of the preceding types of securities in the form of depository shares. The Fund may participate, however, in markets throughout Latin America, which for purposes of this SAI is defined as Central America, South America and the Spanish-speaking islands of the Caribbean, and it is expected that the Fund will be invested at all times in at least three countries. Under present conditions, the Fund expects to focus its investments in Argentina, Brazil, Chile, Columbia, Peru and Venezuela, which IMI believes are the most developed capital markets in South America. As a fundamental restriction, the Fund will not concentrate its investments in any particular industry. The Fund's equity investments consist of common stock, preferred stock (either convertible or non-convertible), sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, and warrants (any of which may be purchased through rights). The Fund's equity securities may be listed on securities exchanges, traded over-the-counter, or have no organized market. The Fund may invest in debt securities (including zero coupon bonds) when IMI anticipates that the potential for capital appreciation from debt securities is likely to equal or exceed that of equity securities (e.g., a favorable change in relative foreign exchange rates, interest rate levels or the creditworthiness of issuers). These include debt securities issued by South American Governments ("Sovereign Debt"). Most of the debt securities in which the Fund may invest are not rated, and those that are rated are expected to be below investment-grade (i.e., rated Ba or below by Moody's or BB or below by S&P, or considered by IMI to be of comparable quality), and are commonly referred to as "high yield" or "junk" bonds. To meet redemptions, or while the Fund is anticipating investments in South American securities, the Fund may hold cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive or emergency purposes, the Fund may (i) invest without limitation in such instruments, and (ii) borrow from banks in accordance with the provisions of the 1940 Act (but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets). Ivy South America Fund may purchase securities on a "when-issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. The Fund will treat as illiquid any South American securities that are subject to restrictions on repatriation for more than seven days, as well as any securities issued in connection with South American debt conversion programs that are restricted to remittance of invested capital or profits. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY SOUTH AMERICA FUND Ivy South America Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy South America Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund" total assets; (vi) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vii) purchase securities on margin; (viii) sell securities short; or (ix) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund) but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which each Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stock changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock, although typically not as much as the price of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. SMALL COMPANIES Investing in smaller company stocks involves certain special considerations and risks that are not usually associated with investing in larger, more established companies. For example, the securities of small or new companies may be subject to more abrupt or erratic market movements because they tend to be thinly traded and are subject to a greater degree to changes in the issuer's earnings and prospects. Small companies also tend to have limited product lines, markets or financial resources. Transaction costs in smaller company stocks also may be higher than those of larger companies. INITIAL PUBLIC OFFERINGS Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. A Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is limited, so it is likely that IPO securities will represent a smaller component of a Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). NATURAL RESOURCES AND PHYSICAL COMMODITIES Since Ivy Global Natural Resources Fund normally invests a substantial portion of its assets in securities of companies engaged in natural resources activities, that Fund may be subject to greater risks and market fluctuations than funds with more diversified portfolios. The value of the Fund's securities will fluctuate in response to market conditions generally, and will be particularly sensitive to the markets for those natural resources in which a particular issuer is involved. The values of natural resources may also fluctuate directly with respect to real and perceived inflationary trends and various political developments. In selecting the Fund's portfolio of investments, MFC will consider each company's ability to create new products, secure any necessary regulatory approvals, and generate sufficient customer demand. A company's failure to perform well in any one of these areas, however, could cause its stock to decline sharply. Natural resource industries throughout the world may be subject to greater political, environmental and other governmental regulation than many other industries. Changes in governmental policies and the need for regulatory approvals may have an adverse effect on the products and services of natural resources companies. For example, the exploration, development and distribution of coal, oil and gas in the United States are subject to significant Federal and state regulation, which may affect rates of return on such investments and the kinds of services that may be offered to companies in those industries. In addition, many natural resource companies have been subject to significant costs associated with compliance with environmental and other safety regulations. Such regulations may also hamper the development of new technologies. The direction, type or effect of any future regulations affecting natural resource industries are virtually impossible to predict. Ivy Global Natural Resources Fund's investments in precious metals (such as gold) and other physical commodities are considered speculative and subject to special risk considerations, including substantial price fluctuations over short periods of time. On the other hand, investments in precious metals coins or bullion could help to moderate fluctuations in the value of the Fund's portfolio, since the prices of precious metals have at times tended not to fluctuate as widely as shares of issuers engaged in the mining of precious metals. Because precious metals and other commodities do not generate investment income, however, the return on such investments will be derived solely from the appreciation and depreciation on such investments. The Fund may also incur storage and other costs relating to its investments in precious metals and other commodities, which may, under certain circumstances, exceed custodial and brokerage costs associated with investments in other types of securities. When the Fund purchases a precious metal, MFC currently intends that it will only be in a form that is readily marketable. Under current U.S. tax law, the Fund may not receive more than 10% of its yearly income from gains resulting from selling precious metals or any other physical commodity. Accordingly, the Fund may be required to hold its precious metals or sell them at a loss, or to sell its portfolio securities at a gain, when for investment reasons it would not otherwise do so. DEBT SECURITIES IN GENERAL Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). Each Fund may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or BBB by S&P, and comparable unrated securities (commonly referred to as "high yield" or "junk" bonds), including many emerging markets bonds, are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The lower the ratings of corporate debt securities, the more their risks render them like equity securities. Such securities carry a high degree of risk (including the possibility of default or bankruptcy of the issuers of such securities), and generally involve greater volatility of price and risk of principal and income (and may be less liquid) than securities in the higher rating categories. (See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics.) Lower rated and unrated securities are especially subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. During an economic downturn or period of rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to service their principal and interest payment obligations. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. Changes in interest rates may have a less direct or dominant impact on high yield bonds than on higher quality issues of similar maturities. However, the price of high yield bonds can change significantly or suddenly due to a host of factors including changes in interest rates, fundamental credit quality, market psychology, government regulations, U.S. economic growth and, at times, stock market activity. High yield bonds may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, a Fund may have to replace the security with a lower yielding security. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market or because of a decline in the value of such securities. A thin trading market may limit the ability of each Fund to accurately value high yield securities in the Fund's portfolio, could adversely affect the price at which a Fund could sell such securities, and cause large fluctuations in the daily net asset value of a Fund's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of low-rated debt securities, especially in a thinly traded market. When secondary markets for high yield securities become relatively less liquid, it may be more difficult to value the securities, requiring additional research and elements of judgment. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high yield securities market can change suddenly and unexpectedly, and even recently issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. For these reasons, it is the policy of IMI not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of each Fund's investment objectives by investment in such securities may be more dependent on IMI's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the best interest of each Fund to retain or dispose of such security. However, should any individual bond held by any Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. Prices for high yield securities may be affected by legislative and regulatory developments. For example, Federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, Congress has from time to time considered legislation that would restrict or eliminate the corporate tax deduction for interest payments in these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayments, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain Federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association, and Student Loan Marketing Association. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in a Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to each Fund on a current basis, but is in effect compounded, the value of the securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of certain debt securities are often offered on a "when-issued" basis, meaning the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the date of the commitment to purchase. Firm commitment agreements call for the purchase of securities at an agreed-upon price on a specified future date. The Fund uses such investment techniques in order to secure what is considered to be an advantageous price and yield to the Fund and not for purposes of leveraging the Fund's assets. In either instance, the Fund will maintain in a segregated account with its Custodian cash or liquid securities equal (on a daily marked-to-market basis) to the amount of its commitment to purchase the underlying securities. ILLIQUID SECURITIES Each Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of each Fund. It is each Fund's policy that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between a Fund's decision to sell a restricted or illiquid security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, a Fund may be required to bear all or part of the registration expenses. Each Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which each Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and related depository instruments, American Depository Shares ("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in each Fund's domestic investments. Although IMI intends to invest each Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which each Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, each Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. It may be more difficult for each Fund's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the United States and foreign countries may be less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. IMI seeks to mitigate the risks to each Fund associated with the foregoing considerations through investment variation and continuous professional management. DEPOSITORY RECEIPTS ADRs, GDRs, ADSs, GDSs and related securities are depository instruments, the issuance of which is typically administered by a U.S. or foreign bank or trust company. These instruments evidence ownership of underlying securities issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges or over-the-counter ("OTC") in the United States. Unsponsored programs are organized independently and without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. EMERGING MARKETS Each Fund could have significant investments in securities traded in emerging markets. Investors should recognize that investing in such countries involves special considerations, in addition to those set forth above, that are not typically associated with investing in United States securities and that may affect each Fund's performance favorably or unfavorably. In recent years, many emerging market countries around the world have undergone political changes that have reduced government's role in economic and personal affairs and have stimulated investment and growth. Historically, there is a strong direct correlation between economic growth and stock market returns. While this is no guarantee of future performance, IMI believes that investment opportunities (particularly in the energy, environmental services, natural resources, basic materials, power, telecommunications and transportation industries) may result within the evolving economies of emerging market countries from which each Fund and its shareholders will benefit. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. Such risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies that may restrict each Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until relatively recently in certain Eastern European countries, of a capital market structure or market-oriented economy; (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries; and (viii) the possibility that currency devaluations could adversely affect the value of each Fund's investments. Further, many emerging markets have experienced and continue to experience high rates of inflation. Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, each Fund could lose a substantial portion of any investments it has made in the affected countries. Further, few (if any) accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial in relation to the actual market values and may be adverse to each Fund's net asset value. Certain Eastern European countries that do not have well-established trading markets are characterized by an absence of developed legal structures governing private and foreign investments and private property. In addition, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of each Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of each Fund's cash and securities, each Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES Certain Asia-Pacific countries in which Ivy Asia Pacific Fund is likely to invest are developing countries, and may be in the initial stages of their industrialization cycle. The economic structures of developing countries generally are less diverse and mature than in the United States, and their political systems may be relatively unstable. Historically, markets of developing countries have been more volatile than the markets of developed countries, yet such markets often have provided higher rates of return to investors. Investing in securities of issuers in Asia-Pacific countries involves certain considerations not typically associated with investing in securities issued in the United States or in other developed countries, including (i) restrictions on foreign investment and on repatriation of capital invested in Asian countries, (ii) currency fluctuations, (iii) the cost of converting foreign currency into United States dollars, (iv) potential price volatility and lesser liquidity of shares traded on Asia-Pacific securities markets and (v) political and economic risks, including the risk of nationalization or expropriation of assets and the risk of war. Certain Asia-Pacific countries may be more vulnerable to the ebb and flow of international trade and to trade barriers and other protectionist or retaliatory measures. Investments in countries that have recently opened their capital markets and that appear to have relaxed their central planning requirement, as well as in countries that have privatized some of their state-owned industries, should be regarded as speculative. The settlement period of securities transactions in foreign markets in general may be longer than in domestic markets, and such delays may be of particular concern in developing countries. For example, the possibility of political upheaval and the dependence on foreign economic assistance may be greater in developing countries than in developed countries, either one of which may increase settlement delays. Securities exchanges, issuers and broker-dealers in some Asia-Pacific countries are subject to less regulatory scrutiny than in the United States. In addition, due to the limited size of the markets for Asia-Pacific securities, the prices for such securities may be more vulnerable to adverse publicity, investors' perceptions or traders' positions or strategies, which could cause a decrease not only in the value but also in the liquidity of the Fund's investments. THE CHINA REGION Investors in Ivy China Region Fund should be aware that many of the China Region countries in which the Fund is likely to invest may be subject to a greater degree of economic, political and social instability than is the case in the United States or other developed countries. Among the factors causing this instability are (i) authoritarian governments or military involvement in political and economic decision making, (ii) popular unrest associated with demands for improved political, economic and social conditions, (iii) internal insurgencies, (iv) hostile relations with neighboring countries, (v) ethnic, religious and racial disaffection, and (vi) changes in trading status, any one of which could disrupt the principal financial markets in which the Ivy China Region Fund invests and adversely affect the value of its assets. China Region countries tend to be heavily dependent on international trade, as a result of which their markets are highly sensitive to protective trade barriers and the economic conditions of their principal trading partners (i.e., the United States, Japan and Western European countries). Protectionist trade legislation, reduction of foreign investment in China Region economies and general declines in the international securities markets could have a significant adverse effect on the China Region securities markets. In addition, certain China Region countries have in the past failed to recognize private property rights and have at times nationalized or expropriated the assets of private companies. There is a heightened risk in these countries that such adverse actions might be repeated. To the extent that any China Region country experiences rapid increases in its money supply or investment in equity securities for speculative purposes, the equity securities traded in such countries may trade at price-earning multiples higher than those of comparable companies trading on securities markets in the United States, which may not be sustainable. Finally, restrictions on foreign investment exists to varying degrees in some China Region countries. Where such restrictions apply, investments may be limited and may increase the Fund's expenses. SOUTH AMERICAN SECURITIES Investors in Ivy South America Fund should be aware that investing in the securities of South American issuers may entail risks relating to the potential political and economic instability of certain South American countries and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment and on repatriation of capital invested. In the event of expropriation, nationalization or other confiscation by any country, the Fund could lose its entire investment in any such country. The securities markets of South American countries are substantially smaller, less developed, less liquid and more volatile than the major securities markets in the U.S. Disclosure and regulatory standards are in many respects less stringent than U.S. standards. Furthermore, there is a lower level of monitoring and regulation of the markets and the activities of investors in such markets. The limited size of many South American securities markets and limited trading volume in the securities of South American issuers compared to volume of trading in the securities of U.S. issuers could cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example, limited market size may cause prices to be unduly influenced by traders who control large positions. Adverse publicity and investors' perceptions, whether or not based on in-depth fundamental analysis, may decrease the value and liquidity of portfolio securities. The Fund invests in securities denominated in currencies of South American countries. Accordingly, changes in the value of these currencies against the U.S. dollar will result in corresponding changes in the U.S. dollar value of the Fund's assets denominated in those currencies. Some South American countries also may have managed currencies, which are not free floating against the U.S. dollar. In addition, there is risk that certain South American countries may restrict the free conversion of their currencies into other countries. Further, certain South American currencies may not be internationally traded. Certain of these currencies have experienced a steep devaluation relative to the U.S. dollar. Any devaluations in the currencies in which the Fund's portfolio securities are denominated may have a detrimental impact on the Fund's net asset value. The economies of individual South American countries may differ favorably or unfavorably from the U.S. economy in such respects as the rate of growth of gross domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Certain South American countries have experienced high levels of inflation which can have a debilitating effect on the economy. Furthermore, certain South American countries may impose withholding taxes on dividends payable to a Fund at a higher rate than those imposed by other foreign countries. This may reduce the Fund's investment income available for distribution to shareholders. Certain South American countries such as Argentina and Brazil are among the world's largest debtors to commercial banks and foreign governments. At times, certain South American countries have declared moratoria on the payment of principal and/or interest on outstanding debt. Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service its debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which defaulted sovereign debt may be collected in whole or in part. Governments of many South American countries have exercised and continue to exercise substantial influence over many aspects of the private sector through the ownership or control of many companies, including some of the largest in those countries. As a result, government actions in the future could have a significant effect on economic conditions which may adversely affect prices of certain portfolio securities. Expropriation, confiscatory taxation, nationalization, political, economic or social instability or other similar developments, such as military coups, have occurred in the past and could also adversely affect a Fund's investments in this region. Changes in political leadership, the implementation of market oriented economic policies, such as privatization, trade reform and fiscal and monetary reform are among the recent steps taken to renew economic growth. External debt is being restructured and flight capital (domestic capital that has left home country) has begun to return. Inflation control efforts have also been implemented. South American equity markets can be extremely volatile and in the past have shown little correlation with the U.S. market. Currencies are typically weak, but most are now relatively free floating, and it is not unusual for the currencies to undergo wide fluctuations in value over short periods of time due to changes in the market. FOREIGN SOVEREIGN DEBT OBLIGATIONS Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service its debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part. BRADY BONDS Ivy European Opportunities Fund may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela. Brady Bonds have been issued only recently, and for that reason do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (but primarily the U.S. dollar) and are actively traded in over-the-counter secondary markets. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least one year's rolling interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. Brady Bonds are often viewed as having three or four valuation components: the collateralized repayment of principal at final maturity; the collateralized interest payments; the uncollateralized interest payments; and any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk"). In light of the residual risk of Brady Bonds and the history of defaults of countries issuing Brady Bonds, with respect to commercial bank loans by public and private entities, investments in Brady Bonds may be viewed as speculative. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, each Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs and may purchase forward foreign currency contracts. Because of these factors, the value of the assets of each Fund as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and each Fund may incur costs in connection with conversions between various currencies. Although each Fund's custodian values the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. Each Fund will do so from time to time, however, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Each Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. Because each Fund normally will be invested in both U.S. and foreign securities markets, changes in each Fund's share price may have a low correlation with movements in U.S. markets. Each Fund's share price will reflect the movements of the different stock and bond markets in which it is invested (both U.S. and foreign), and of the currencies in which the investments are denominated. Thus, the strength or weakness of the U.S. dollar against foreign currencies may account for part of each Fund's investment performance. U.S. and foreign securities markets do not always move in step with each other, and the total returns from different markets may vary significantly. Currencies in which each Fund's assets are denominated may be devalued against the U.S. dollar, resulting in a loss to each Fund. FOREIGN CURRENCY EXCHANGE TRANSACTIONS Each Fund may enter into forward foreign currency contracts in order to protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date (usually less than a year), and typically is individually negotiated and privately traded by currency traders and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for commissions, they do realize a profit based on the difference between the price at which they are buying and selling various currencies. Although these contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. While each Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for each Fund than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by that Fund. An imperfect correlation of this type may prevent a Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. Each Fund may purchase currency forwards and combine such purchases with sufficient cash or short-term securities to create unleveraged substitutes for investments in foreign markets when deemed advantageous. Each Fund may also combine the foregoing with bond futures or interest rate futures contracts to create the economic equivalent of an unhedged foreign bond position. Each Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which that Fund has or in which the Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to a Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. OTHER INVESTMENT COMPANIES Each Fund may invest up to 10% of its total assets in the shares of other investment companies. As a shareholder of an investment company, a Fund would bear its ratable shares of the fund's expenses (which often include an asset-based management fee). Each Fund could also lose money by investing in other investment companies, since the value of their respective investments and the income they generate will vary daily based on prevailing market conditions. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which a Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, each Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. Each Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, a Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, each Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. Each Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by a Fund. Each Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. Each Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on each Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of each Fund's borrowings will be fixed, each Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. WARRANTS The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. However, prices of warrants do not necessarily move in a tandem with the prices of the underlying securities, and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by any Fund were not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. REAL ESTATE INVESTMENT TRUSTS (REITS) A REIT is a corporation, trust or association that invests in real estate mortgages or equities for the benefit of its investors. REITs are dependent upon management skill, may not be diversified and are subject to the risks of financing projects. Such entities are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs indirectly through Ivy Global Fund, a shareholder will bear not only his or her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligation in an OTC transaction, a Fund would negotiate directly with the counterparty. Each Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by that Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that a Fund has written lapses unexercised, because the Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by each Fund, are taxable as ordinary income. See "Taxation." Each Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by that Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by each Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When a Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may write (sell) covered call options on each Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. Each Fund may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the Fund for the options). In view of the investment objectives of each Fund, each Fund generally would write call options only in circumstances where the investment adviser to the Fund does not anticipate significant appreciation of the underlying security in the near future or has otherwise determined to dispose of the security. A "covered" call option means generally that so long as a Fund is obligated as the writer of a call option, that Fund will (i) own the underlying securities subject to the option, or (ii) have the right to acquire the underlying securities through immediate conversion or exchange of convertible preferred stocks or convertible debt securities owned by the Fund. Although a Fund receives premium income from these activities, any appreciation realized on an underlying security will be limited by the terms of the call option. Each Fund may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, a Fund receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period, if the option is exercised. So long as a Fund remains obligated as a writer of a call option, it forgoes the opportunity to profit from increases in the market price of the underlying security above the exercise price of the option, except insofar as the premium represents such a profit (and retains the risk of loss should the value of the underlying security decline). PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may purchase a put option on an underlying security owned by that Fund as a defensive technique in order to protect against an anticipated decline in the value of the security. Each Fund, as the holder of the put option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that a Fund must pay. These costs will reduce any profit the Fund might have realized had it sold the underlying security instead of buying the put option. The premium paid for the put option would reduce any capital gain otherwise available for distribution when the security is eventually sold. The purchase of put options will not be used by any Fund for leverage purposes. Each Fund may also purchase a put option on an underlying security that it owns and at the same time write a call option on the same security with the same exercise price and expiration date. Depending on whether the underlying security appreciates or depreciates in value, the Fund would sell the underlying security for the exercise price either upon exercise of the call option written by it or by exercising the put option held by it. A Fund would enter into such transactions in order to profit from the difference between the premium received by the Fund for the writing of the call option and the premium paid by the Fund for the purchase of the put option, thereby increasing the Fund's current return. Each Fund may write (sell) put options on individual securities only to effect a "closing sale transaction." RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of a U.S. option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities (or cash in the case of an index option) at the exercise price. If a put or call option purchased by a Fund is not sold when it has remaining value, and if the market price of the underlying security (or index), in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security (or index) is purchased to hedge against price movements in a related security (or securities), the price of the put or call option may move more or less than the price of the related security (or securities). In this regard, there are differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position. Finally, trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. Closing transactions can be made for OTC options only by negotiating directly with the counterparty or by a transaction in the secondary market, if any such market exists. Transfer of an OTC option is usually prohibited absent the consent of the original counterparty. There is no assurance that a Fund will be able to close out an OTC option position at a favorable price prior to its expiration. An OTC counterparty may fail to deliver or to pay, as the case may be. In the event of insolvency of the counterparty, a Fund might be unable to close out an OTC option position at any time prior to its expiration. Although a Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, a Fund may experience losses in some cases as a result of such inability. When conducted outside the U.S., options transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in each Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and liquidity. Each Fund's options activities also may have an impact upon the level of its portfolio turnover and brokerage commissions. See "Portfolio Turnover." Each Fund's success in using options techniques depends, among other things, on IMI's ability to predict accurately the direction and volatility of price movements in the options and securities markets, and to select the proper type, timing of use and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS IN GENERAL. Each Fund may enter into futures contracts and options on futures contracts for hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a commodity at a specified price and time. When a purchase or sale of a futures contract is made by a Fund, that Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or liquid securities ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, each Fund will mark-to-market its open futures position. Each Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery of offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, each Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, each Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. When purchasing a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, each Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund, or, if lower, may cover the difference with cash or short-term securities. When selling a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, each Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). When selling a call option on a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, equal the total market value of the futures contract underlying the call option. Alternatively, a Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund, or covering the difference if the price is higher. When selling a put option on a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that equal the purchase price of the futures contract less any margin on deposit. Alternatively, a Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund, or, if lower, the Fund may hold securities to cover the difference. FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund may engage in foreign currency futures contracts and related options transactions for hedging purposes. A foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a foreign currency at a specified price and time. An option on a foreign currency futures contract gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon the exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. Each Fund may purchase call and put options on foreign currencies as a hedge against changes in the value of the U.S. dollar (or another currency) in relation to a foreign currency in which portfolio securities of the Fund may be denominated. A call option on a foreign currency gives the buyer the right to buy, and a put option the right to sell, a certain amount of foreign currency at a specified price during a fixed period of time. Each Fund may invest in options on foreign currency which are either listed on a domestic securities exchange or traded on a recognized foreign exchange. In those situations where foreign currency options may not be readily purchased (or where such options may be deemed illiquid) in the currency in which the hedge is desired, the hedge may be obtained by purchasing an option on a "surrogate" currency, i.e., a currency where there is tangible evidence of a direct correlation in the trading value of the two currencies. A surrogate currency's exchange rate movements parallel that of the primary currency. Surrogate currencies are used to hedge an illiquid currency risk, when no liquid hedge instruments exist in world currency markets for the primary currency. Each Fund will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade, or similar entity or quoted on an automated quotation system. Each Fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the aggregate initial margin deposits for futures contracts held by the Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," would exceed 5% of the liquidation value of the Fund's portfolio (or the Fund's net asset value), after taking into account unrealized profits and unrealized losses on any such contracts the Fund has entered into. A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. For additional information about margin deposits required with respect to futures contracts and options thereon, see "Futures Contracts and Options on Futures Contracts." RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in a Fund's portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an active secondary market will continue to exist. Currency futures contracts and options thereon may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such position also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. SECURITIES INDEX FUTURES CONTRACTS Each Fund (except Ivy Global Natural Resources Fund) may enter into securities index futures contracts as an efficient means of regulating the Fund's exposure to the equity markets. Each Fund will not engage in transactions in futures contracts for speculation, but only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. The value of a unit is the current value of the stock index. For example, the S&P 500 Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The index futures contract specifies that no delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if a Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If a Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). RISKS OF SECURITIES INDEX FUTURES. Each Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. Each Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, each Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although each Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when a Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, a Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. Each Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. Each Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. When purchasing an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund. When selling an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in cash or liquid assets in a segregated account with the Fund's custodian). COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions and multiple currency transactions (including forward currency contracts) and some combination of futures, options, and currency transactions ("component" transactions), instead of a single transaction, as part of a single or combined strategy when, in the opinion of IMI, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. PORTFOLIO TURNOVER Each Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining each Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. TRUSTEES AND OFFICERS Each Fund's Board of Trustees (the "Board") is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering each Fund's day-to-day operations. The Trustees and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: POSITION WITH BUSINESS AFFILIATIONS NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS John S. Anderegg, Jr. Trustee Chairman, Dynamics Research 60 Concord Street Corp. (instruments and controls); Wilmington, MA 01887 Director, Burr-Brown Corp. Age: 75 (operational amplifiers); Director, Metritage Incorporated (level measuring instruments); Trustee of Mackenzie Series Trust (1992-1998). James W. Broadfoot President President, Ivy Management Inc. 700 South Federal Hwy. and (1996-present); Senior Vice Suite 300 Trustee President, Ivy Management, Inc. Boca Raton, FL 33432 (1992-1996); Director and Senior Age: 56 Vice President, Mackenzie [*Deemed to be an Investment Management Inc. (1995- "interested person" present); Senior Vice President, of the Trust, as Mackenzie Investment Management defined under the Inc. (1990-1995). 1940 Act.] Paul H. Broyhill Trustee Chairman, BMC Fund, Inc. 800 Hickory Blvd. (1983-present); Chairman, Golfview Park-Box 500 Broyhill Family Foundation, Lenoir, NC 28645 Inc. (1983-Present); Chairman Age: 75 and President, Broyhill Investments, Inc. (1983-present); Chairman, Broyhill Timber Resources (1983-present); Management of a personal portfolio of fixed-income and equity investments (1983- present); Trustee of Mackenzie Series Trust (1988-1998); Director of The Mackenzie Funds Inc. (1988-1995). Keith J. Carlson Chairman Senior Vice President of 700 South Federal Hwy. and Mackenzie Investment Management, Suite 300 Trustee Inc. (1996-present); Senior Vice Boca Raton, FL 33432 President and Director of Age: 42 Mackenzie Investment Management, [*Deemed to be an Inc. (1994-1996); Senior Vice "interested person" President and Treasurer of of the Trust, as defined Mackenzie Investment Management, under the Inc. (1989-1994); Senior Vice 1940 Act.] President and Director of Ivy Management Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management Inc. (1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); Senior Vice President and Director, Ivy Mackenzie Services Corp. (1996- present); President and Director of Ivy Mackenzie Services Corp. (1993-1996); Trustee and President of Mackenzie Series Trust (1996-1998); Vice President of Mackenzie Series Trust (1994- 1998); Treasurer of Mackenzie Series Trust (1985-1994); President, Chief Executive Officer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Executive Vice President and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); Trustee of Mackenzie Series Trust (1996-1998). Stanley Channick Trustee President and Chief Executive 11 Bala Avenue Officer, The Whitestone Bala Cynwyd, PA 19004 Corporation (insurance agency); Age: 75 Chairman, Scott Management Company (administrative services for insurance companies); President, The Channick Group (consultants to insurance companies and national trade associations); Trustee of Mackenzie Series Trust (1994- 1998); Director of The Mackenzie Funds Inc. (1994-1995). Roy J. Glauber Trustee Mallinckrodt Professor of Lyman Laboratory Physics, Harvard University of Physics (1974-present); Trustee of Harvard University Mackenzie Series Trust (1994- Cambridge, MA 02138 1997). Age: 73 Dianne Lister Trustee President and Chief Executive 556 University Avenue Officer, The Hospital for Sick Toronto, Ontario L4J 2T4 Children Foundation (1993- present); Chief Operating Officer, The Hospital for Sick Children Foundation (1992-1993); Executive Vice President, The Hospital for Sick Children Foundation (1991-1992). Joseph G. Rosenthal Trustee Chartered Accountant 110 Jardin Drive (1958-present); Trustee of Unit #12 Mackenzie Series Trust Concord, Ontario Canada (1985-1998); Director of L4K 2T7 The Mackenzie Funds Inc. Age: 64 (1987-1995). Richard N. Silverman Trustee Director, Newton-Wellesley 18 Bonnybrook Road Hospital; Director, Beth Waban, MA 02168 Israel Hospital; Director, Age: 75 Boston Ballet; Director, Boston Children's Museum; Director, Brimmer and May School. J. Brendan Swan Trustee President, Airspray Inter- 4701 North Federal Hwy. national, Inc.; Joint Managing Suite 465 Director, Airspray International Pompano Beach, FL 33064 B.V. (an environmentally sensitive Age: 69 packaging company); Director of Polyglass LTD.; Director, The Mackenzie Funds Inc. (1992-1995); Trustee of Mackenzie Series Trust (1992-1998). Edward M. Tighe Trustee Chief Executive Officer, CITCO 5900 N. Andrews Avenue Technology Management, Inc. Suite 700 ("CITCO") (computer software Ft. Lauderdale, FL 33309 development and consulting) (1999-present); President and Director, Global Technology Management, Inc. (CITCO's predecessor) (1992-1998); Managing Director, Global Mutual Fund Services, Ltd. (financial services firm); President, Director and Chief Executive Officer, Global Mutual Fund Services, Inc. (1994-present). C. William Ferris Secretary/ Senior Vice President, 700 South Federal Hwy. Treasurer Chief Financial Officer Suite 300 and Secretary/Treasurer Boca Raton, FL 33432 of Mackenzie Investment Age: 54 Management Inc. (1995-present); Senior Vice President, Finance and Administration/Compliance Officer of Mackenzie Investment Management Inc. (1989-1994); Senior Vice President, Secretary/ Treasurer and Clerk of Ivy Management Inc. (1994- present); Vice President, Finance/Administration and Compliance Officer of Ivy Management Inc. (1992-1994); Senior Vice President, Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); President and Director of Ivy Mackenzie Services Corp. (1996-present); Secretary/Treasurer and Director of Ivy Mackenzie Services Corp. (1993-1996); Secretary/Treasurer of The Mackenzie Funds Inc. (1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994-1998). COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 1999) PENSION OR TOTAL RETIREMENT ESTIMATED COMPENSATION BENEFITS ANNUAL FROM TRUST AGGREGATE ACCRUED AS BENEFITS AND FUND NAME, COMPENSATION PART OF FUND UPON COMPLEX PAID POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES John S. Anderegg, Jr. (Trustee) James W. Broadfoot (Trustee and President) Paul H. Broyhill (Trustee) Keith J. Carlson (Trustee and Chairman) Stanley Channick (Trustee) Frank W. DeFriece, Jr. (Trustee) Dianne Lister (Trustee) Roy J. Glauber (Trustee) Joseph G. Rosenthal (Trustee) Richard N. Silverman (Trustee) J. Brendan Swan (Trustee) C. William Ferris (Secretary/ Treasurer) *The Fund complex consists of Ivy Fund and Mackenzie Solutions. To the knowledge of the Trust, as of __________________, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions [to be completed by amendment]. As of _________________, the Officers and Trustees of the Trust as a group owned beneficially or of record less than 1% of the outstanding Class A, Class B, Class C, Class I and Advisor Class shares of each of the twenty-one Ivy funds that are series of the Trust, except that [to be completed by amendment]. PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted to engage in personal securities transactions, subject to the requirements and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the "Code of Ethics"). The Code of Ethics is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the Funds. Among other things, the Code of Ethics, which IMI believes complies with Rule 17j-1 under the 1940 Act, prohibits certain types of transactions absent prior approval, applies to portfolio managers, traders, research analysts and others involved in the investment advisory process, and imposes time periods during which personal transactions in certain securities may not be made, and requires the submission of duplicate broker confirmations and quarterly and annual reporting of securities transactions. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate officers or compliance personnel. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation organized under the laws of Ontario and whose shares are listed for trading on the TSE. MFC provides investment advisory services to the Fund pursuant to an Investment Advisory Agreement, and IMI provides business management and investment advisory services to each of the other Funds pursuant to a Business Management and Investment Advisory Agreement (each an "Agreement"). IMI provides business management services to Ivy Global Natural Resources Fund pursuant to a Business Management Agreement (the "Management Agreement"). IMI also currently acts as manager and investment adviser to the other series of Ivy Fund and the five series of Mackenzie Solutions. The Agreements obligate IMI and MFC to make investments for the account of each Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. IMI and MFC also determine the securities to be purchased or sold by each Fund and place orders with brokers or dealers who deal in such securities. Under the IMI Agreement and the Management Agreement, IMI also provides certain business management services. IMI is obligated to (1) coordinate with each Fund's Custodian and monitor the services it provides to each Fund; (2) coordinate with and monitor any other third parties furnishing services to each Fund; (3) provide each Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund's needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by each Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with the Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. IMI is also responsible for reviewing the activities of MFC to ensure that Ivy Global Natural Resources Fund is operated in compliance with its investment objectives and policies and with the 1940 Act. Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue, London, England EC2M 2PA, serves as subadviser to Ivy European Opportunities Fund under an Agreement with IMI. For its services, Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of the Fund's average net assets. As of February 1, 1999, Henderson also serves as subadviser with respect to 50% of the net assets of Ivy International Small Companies Fund, for which Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of that portion of the Fund's assets that Henderson manages. Henderson is an indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance and financial services company located in New South Wales, Australia. Ivy Global Natural Resources Fund pays IMI a monthly fee for providing business management services at an annual rate of 0.50% of the Fund's average net assets. For investment advisory services, Ivy Global Natural Resources Fund pays MFC a monthly fee at an annual rate of 0.50% of its average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Natural Resources Fund paid IMI fees of $32,056, $20,977 and $[ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $25,180, $147,952 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Natural Resources Fund paid MFC fees of $32,056, $20,977 and $[ ], respectively. Each other Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 1.00% of the Fund's average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Asia Pacific Fund paid IMI fees of $10,473, $49,509 and $[ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $10,473, $167,194 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy China Region Fund paid IMI fees of $277,601, $187,381 and $[ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $18,377, $105,095 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Developing Nations Fund paid IMI fees of $284,290, $156,166 and $[ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $22,860, $200,839 and $[ ], respectively. During the period from commencement (May 3, 1999) through December 31, 1999, Ivy European Opportunities Fund paid IMI fees of $[ ]. During the same period, IMI reimbursed Fund expenses in the amount of $[ ]. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Fund paid IMI fees of $383,981, $275,958 and $[ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $98,102 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Science & Technology Fund paid IMI fees of $229,616, $280,079 and $[ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and $[ ], respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997 and the fiscal years ended December 31, 1998 and 1999, Ivy International Fund II paid IMI fees of $413,862, $1,356,028 and $[ ], respectively. During these periods IMI reimbursed Fund expenses in the amount of $123,177, $186,536 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy International Small Companies Fund paid IMI fees of $28,799, $34,504 and $[ ], respectively. During these periods IMI reimbursed Fund expenses in the amount of $28,799, $134,787 and $[ ], respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997 and the fiscal years ended December 31, 1998 and 1999, Ivy Pan-Europe Fund paid IMI fees of $1,974, $43,978 and $[ ], respectively. During these periods IMI reimbursed Fund expenses in the amount of $1,974, $148,399 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy South America Fund paid IMI fees of $94,278, $53,857 and $[ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $68,548, $145,867 and $[ ], respectively. Under the Agreements, the Trust pays the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. IMI currently limits each Fund's total operating expenses (excluding Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) to an annual rate of 1.95% of that Fund's average net assets, which may lower each Fund's expenses and increase its yield. The Agreements will continue in effect with respect to each Fund from year to year, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the Independent Trustees and (ii) either (a) by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of that Fund or (b) by the vote of a majority of the entire Board. If the question of continuance of the Agreement (or adoption of any new agreement) is presented to the shareholders, continuance (or adoption) shall be effected with respect to each Fund only if approved by the affirmative vote of a majority of the outstanding voting securities of that Fund. See "Capitalization and Voting Rights." The Agreements may be terminated with respect to each Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of a Fund, on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. Each Agreement shall terminate automatically in the event of its assignment. DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of each Fund's shares pursuant to an amended and restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. Each Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund's behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at each Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to any Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to the Fund or by a Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. If the Distribution Agreement is terminated (or not renewed) with respect to any of the Ivy funds (or class of shares thereof), it may continue in effect with respect to any other fund (or class of shares thereof) as to which it has not been terminated (or has been renewed). RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund represent an equal pro rata interest in that Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of each Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) each Fund's Class B shares will convert automatically into Class A shares of that Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the assets of each Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of each Fund's foreign securities. With respect to each Fund, the Custodian may receive, as partial payment for its services to each Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to a Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for each Fund. As compensation for those services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of the Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. During the fiscal year ended December 31, 1999, Ivy Asia Pacific Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy China Region Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Developing Nations Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy European Opportunities Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Global Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Global Natural Resources Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Global Science & Technology Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy International Fund II paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy International Small Companies Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Pan-Europe Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy South America Fund paid MIMI $[ ] under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each open Class A, Class B, Class C, and Advisor Class account. Each Fund with Class I shares pays a monthly fee at an annual rate of $10.25 per open Class I account. In addition, each Fund pays a monthly fee at an annual rate of $4.58 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Asia Pacific Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy China Region Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Developing Nations Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy European Opportunities Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Global Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Global Natural Resources Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Global Science & Technology Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy International Fund II totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy International Small Companies Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Pan-Europe Fund totaled $[ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy South America Fund totaled $[ ]. Certain broker-dealers that maintain shareholder accounts with each Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by IMSC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. IMSC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to each Fund. As compensation for these services, each Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net asset value of its Class A, Class B, Class C, and Advisor Class shares. Each Fund with Class I shares pays MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I. Such fees for the fiscal year ended December 31, 1999 for Ivy Asia Pacific Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy China Region Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Developing Nations Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy European Opportunities Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Global Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Global Natural Resources Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Global Science & Technology Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy International Fund II totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy International Small Companies Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Pan-Europe Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy South America Fund totaled $[ ]. AUDITORS [ ], independent public accountants, has been selected as auditors for the Trust. The audit services performed by [ ] include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI (or for Global Natural Resources Fund, MFC) places orders for the purchase and sale of each Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by the Funds for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI (or MFC) attempts to deal directly with the principal market makers, except in those circumstances where IMI (or MFC) believes that a better price and execution are available elsewhere. IMI (or MFC) selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI (or MFC) in servicing all of its accounts. In addition, not all of these services may be used by IMI (or MFC) in connection with the services it provides to the Fund or the Trust. IMI (or MFC) may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI (or MFC) will not, however, execute brokerage transactions other than at the best price and execution. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Asia Pacific Fund paid brokerage commissions of $18,500, $75,104 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy China Region Fund paid brokerage commissions of $70,846, $112,289 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Developing Nations Fund paid brokerage commissions of $170,306, $83,565 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Fund paid brokerage commissions of $123,985, $76,661 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Natural Resources Fund paid brokerage commissions of $128,646, $49,752 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Global Science & Technology Fund paid brokerage commissions of $99,546, $110,302 and $[ ], respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997, and the fiscal years ended December 31, 1998 and 1999, Ivy International Fund II paid brokerage commissions of $332,022, $225,584 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy International Small Companies Fund paid brokerage commission of $14,913, $5,087 and $[ ], respectively. During the period from May 13, 1997 (commencement of operations) to December 31, 1997, and the fiscal years ended December 31, 1998 and 1999, Ivy Pan-Europe Fund paid brokerage commissions of $491, $11,639 and $[ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy South America Fund paid brokerage commissions of $17,213, $19,922 and $[ ], respectively. Brokerage commissions vary from year to year in accordance with the degree to which a particular Fund is more or less actively traded. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI (or MFC) deems to be a desirable investment for each Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for any Fund shares with securities and may discontinue accepting securities as payment for any Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and each Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate any Fund upon written notice to shareholders. This might occur, for example, if a Fund did not reach or failed to maintain an economically viable size. The Trustees have authorized twenty-one series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy US Blue Chip Fund and Ivy [ ] Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of that Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of that Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to that Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Amended and Restated Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Amended and Restated Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of any Fund held personally liable for the obligations of that Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund and Ivy [ ] Fund (the other ten series of the Trust). (Effective April 18, 1997, Ivy International Fund suspended the offer of its shares to new investors). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares except Class I. The minimum initial and subsequent investment under this method is $250 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to Ivy Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds (except Ivy International Fund unless they have an existing Ivy International Fund account). Before effecting an exchange, shareholders of a Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. Advisor Class shareholders may exchange their outstanding Advisor Class shares for Advisor Class shares of another Ivy Fund on the basis of the relative net asset value per share. The minimum value of Advisor Class shares which may be exchanged into an Ivy fund in which shares are not already held is $10,000. No exchange out of any Fund (other than by a complete exchange of all Fund shares) may be made if it would reduce the shareholder's interest in the Advisor Class shares of that Fund to less than $10,000. Each exchange will be made on the basis of the relative net asset value per share of the Ivy funds involved in the exchange next computed following receipt by IMSC of telephone instructions by IMSC or a properly executed request. Exchanges, whether written or telephonic, must be received by IMSC by the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) to receive the price computed on the day of receipt. Exchange requests received after that time will receive the price next determined following receipt of the request. The exchange privilege may be modified or terminated at any time, upon at least 60 days' notice to the extent required by applicable law. See "Redemptions." An exchange of shares between any of the Ivy funds will result in a taxable gain or loss. Generally, this will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. However, in certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on an exchange. See "Taxation." With limited exceptions, gain realized by a tax-deferred retirement plan will not be taxable to the plan and will not be taxed to the participant until distribution. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from IMSC, who may impose a charge for establishing the account. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, an eligible individual may contribute up to the lesser of $2,000 or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are both employed, and both are under age 70-1/2, each may set up his or her own IRA within these limits. If both earn at least $2,000 per year, the maximum potential contribution is $4,000 per year for both. For years after 1996, the result is similar even if one spouse has no earned income; if the joint earned income of the spouses is at least $4,000, a contribution of up to $2,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (or his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includable in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses and amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAS: Shares of each Fund also may be used as a funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $2,000 per year to a Roth IRA. The maximum contribution amount diminishes and gradually falls to zero for single filers with adjusted gross incomes ranging from $95,000 to $110,000. Married couples earning less than $150,000 combined, and filing jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum contribution amount for married couples filing jointly phases out from $150,000 to $160,000. An individual whose adjusted gross income exceeds the maximum phase-out amount cannot contribute to a Roth IRA. An eligible individual can contribute money to a traditional IRA and a Roth IRA as long as the total contribution to all IRAs does not exceed $2,000. Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA (other than the amount of nondeductible contributions) are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: reaching age 59 1/2, death, disability, deductible medical expenses, the purchase of health insurance for certain unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $30,000 or 25% of compensation or earned income to a money purchase pension plan or to a combination profit sharing and money purchase pension plan arrangement each year on behalf of each participant. To be deductible, total contributions to a profit sharing plan generally may not exceed 15% of the total compensation or earned income of all participants in the plan, and total contributions to a combination money purchase-profit sharing arrangement generally may not exceed 25% of the total compensation or earned income of all participants. The amount of compensation or earned income of any one participant that may be included in computing the deduction is limited (generally to $150,000 for benefits accruing in plan years beginning after 1993, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Custodial Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's separation from service. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay tax-deductible medical expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Trust in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from IMSC. Distributions from the 403(b)(7) Account may be made only following death, disability, separation from service, attainment of age 59-1/2, or incurring a financial hardship. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical expenses; (4) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (5) rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account. SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP accounts generally are subject to all rules applicable to IRA accounts, except the deduction limits, and are subject to certain employee participation requirements. No new salary reduction SEPs ("SARSEPs") may be established after 1996, but existing SARSEPs may continue to be maintained, and non-salary reduction SEPs may continue to be established as well as maintained after 1996. SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k) for years after 1996. An employee can make pre-tax salary reduction contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if the employer maintains or maintained any other qualified retirement plan with respect to which any contributions or benefits have been credited. SYSTEMATIC WITHDRAWAL PLAN A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or by delivery to IMSC of a written election to have his or her shares withdrawn periodically (minimum distribution amount - $250), accompanied by a surrender to IMSC of all share certificates then outstanding in such shareholder's name, properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must continually maintain an account balance of at least $10,000. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisers. Additional investments made by investors participating in a Withdrawal Plan must equal at least $250 each while the Withdrawal Plan is in effect. An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to IMSC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of each Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Trust does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of a Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Trust reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Trust and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that for each twelve-month period (or portion thereof) that the account is maintained. The Trust may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Trust reserves the right to change these fees from time to time without advance notice. REDEMPTIONS Shares of each Fund are redeemed at their net asset value next determined after a proper redemption request has been received by IMSC. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by a Fund is not reasonably practicable or it is not reasonably practicable for a Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of any Fund. The Trust may redeem those Advisor Class accounts of shareholders who have maintained an investment of less than $10,000 in any Fund for a period of more than 12 months. All Advisor Class accounts below that minimum will be redeemed simultaneously when MIMI deems it advisable. The $10,000 balance will be determined by actual dollar amounts invested by the shareholder, unaffected by market fluctuations. The Trust will notify any such shareholder by certified mail of its intention to redeem such account, and the shareholder shall have 60 days from the date of such letter to invest such additional sums as shall raise the value of such account above that minimum. Should the shareholder fail to forward such sum within 60 days of the date of the Trust's letter of notification, the Trust will redeem the shares held in such account and transmit the redemption in value thereof to the shareholder. However, those shareholders who are investing pursuant to the Automatic Investment Method will not be redeemed automatically unless they have ceased making payments pursuant to the plan for a period of at least six consecutive months, and these shareholders will be given six-months' notice by the Trust before such redemption. Shareholders in a qualified retirement, pension or profit sharing plan who wish to avoid tax consequences must "rollover" any sum so redeemed into another qualified plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. Delivery of the proceeds of a wire redemption request of $250,000 or more may be delayed by a Fund for up to seven days if deemed appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. Each Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, a Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. NET ASSET VALUE The net asset value per share of each Fund is computed by dividing the value of that Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining each Fund's aggregate net assets, receivables are valued at their realizable amounts. Each Fund's liabilities, if not identifiable as belonging to a particular class of the Fund, are allocated among the Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in the Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted sale price on the exchange on which the security is principally traded. If no sale is reported at that time, the average between the last bid and asked price (the "Calculated Mean") is used. Unless otherwise noted herein, the value of a foreign security is determined in its national currency as of the normal close of trading on the foreign exchange on which it is traded or as of the close of regular trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, eastern time, on the day the value of the foreign security is determined. All other securities for which OTC market quotations are readily available are valued at the Calculated Mean. A debt security normally is valued on the basis of quotes obtained from at least two dealers (or one dealer who has made a market in the security) or pricing services that take into account appropriate valuation factors. Interest is accrued daily. Money market instruments are valued at amortized cost, which the Board believes approximates market value. An exchange-traded option is valued at the last sale price on the exchange on which it is principally traded, if available, and otherwise is valued at the last sale price on the other exchange(s). If there were no sales on any exchange, the option shall be valued at the Calculated Mean, if possible, and otherwise at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC option is valued at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of a Fund's portfolio securities occur between the time when a foreign exchange closes and the time when that Fund's net asset value is calculated (see following paragraph), such securities may be valued at fair value as determined by IMI in accordance with procedures approved by the Board. Portfolio securities are valued (and net asset value per share is determined) as of the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) on each day the Exchange is open for trading. The Exchange and the Trust's offices are expected to be closed, and net asset value will not be calculated, on the following national business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days when either or both of a Fund's Custodian or the Exchange close early as a result of a partial holiday or otherwise, the Trust reserves the right to advance the time on that day by which purchase and redemption requests must be received. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on each Fund's net asset value next determined after your instructions are received in proper form by IMSC or by your registered securities dealer. Since each Fund invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Funds do not price their shares, each Fund's net asset value may change on days when shareholders will not be able to purchase or redeem that Fund's shares. The sale of each Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in a Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to each Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax adviser about the tax consequences to them of investing in any Fund. The Funds are not managed for tax-efficiency. Each Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, each Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies). As a regulated investment company, each Fund generally will not be subject to U.S. Federal income tax on its income and gains that it distributes to shareholders, if at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and the excess of any short-term capital gains over long-term capital losses) for the taxable year is distributed. Each Fund intends to distribute all such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each Fund must distribute during each calendar year, (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirements. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December of the year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year the distributions are declared, rather than the calendar year in which the distributions are received. OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS The taxation of equity options and OTC options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by each Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to the Fund. If a Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by a Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by a Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Some of the options, futures and foreign currency forward contracts in which each Fund may invest may be "section 1256 contracts." Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; however, as described below, foreign currency gains or losses arising from certain section 1256 contracts are ordinary in character. Also, section 1256 contracts held by each Fund at the end of each taxable year (and on certain other dates prescribed in the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. The transactions in options, futures and forward contracts undertaken by each Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains or losses realized by each Fund. In addition, losses realized by each Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to each Fund are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by each Fund, which is taxed as ordinary income when distributed to shareholders. Each Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a fund that did not engage in such transactions. Notwithstanding any of the foregoing, each Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of a Fund's taxable year, if certain conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time a Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of each Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES Each Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If a Fund receives a so-called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which a Fund held the PFIC shares. A Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. Each Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Each Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, each Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. Each Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by each Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, a Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Each Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. Each Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by each Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by each Fund. DISTRIBUTIONS Distributions of investment company taxable income are taxable to a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends paid by a Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received from U.S. corporations by the Fund, may qualify for the dividends received deduction. However, the revised alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by each Fund as capital gain dividends, are taxable to shareholders as long-term capital gains whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares; such distributions are not eligible for the dividends received deduction. Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the net asset value of a share of that Fund on the distribution date. A distribution of an amount in excess of a Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Shareholders will be notified annually as to the U.S. Federal tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the net asset value of the shares received. If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Shareholders should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. DISPOSITION OF SHARES Upon a redemption, sale or exchange of his or her shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and, if so, will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss realized on a redemption sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six-months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having been received by the shareholder with respect to such shares. In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of a Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the same Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by each Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of a Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible and may elect to "pass-through" to its shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of each Fund's taxable year whether the foreign taxes paid by that Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if a Fund makes the election described in the preceding paragraph, the source of that Fund's income flows through to its shareholders. With respect to each Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from each Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of a Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if a Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers. BACKUP WITHHOLDING Each Fund will be required to report to the Internal Revenue Service ("IRS") all taxable distributions as well as gross proceeds from the redemption of that Fund's shares, except in the case of certain exempt shareholders. All such distributions and proceeds will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1) the shareholder fails to furnish a Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amounts required to be withheld. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. This discussion does not purport to deal with all of the tax consequences applicable to each Fund or shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in any Fund. PERFORMANCE INFORMATION Performance information for the classes of shares of each Fund may be compared, in reports and promotional literature, to: (i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors may compare each Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, a widely used independent research firm that ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in each Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. Performance rankings are based on historical information and are not intended to indicate future performance. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of each Fund will be expressed in terms of the average annual compounded rate of return that would cause a hypothetical investment in that class of that Fund made on the first day of a designated period to equal the ending redeemable value ("ERV") of such hypothetical investment on the last day of the designated period, according to the following formula: P(1 + T){superscript n} = ERV Where: P = a hypothetical initial payment of $1,000 to purchase shares of a specific class T = the average annual total return of shares of that class n = the number of years ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. For purposes of the above computation for each Fund, it is assumed that all dividends and capital gains distributions made by that Fund are reinvested at net asset value in additional Advisor Class shares during the designated period. Standardized Return quotations for each Fund do not take into account any required payments for federal or state income taxes. Standardized Return quotations are determined to the nearest 1/100 of 1%. Each Fund may, from time to time, include in advertisements, promotional literature or reports to shareholders or prospective investors total return data that are not calculated according to the formula set forth above ("Non-Standardized Return"). In determining the average annual total return for a specific class of shares of each Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of each Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of the Fund. The Standardized Return figures for Ivy China Region Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. [These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return figures would have been [ ], respectively.] The Standardized Return figures for Ivy Developing Nations Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. [These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return figures would have been [ ], respectively.] The Standardized Return figures for Ivy Global Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. [These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return figures would have been [ ], respectively.] The Standardized Return figures for Ivy Global Science & Technology Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. [These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return figures would have been [ ], respectively.] The Standardized Return figures for Ivy International Fund II's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. [These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return figures would have been [ ], respectively.] The Standardized Return figures for Ivy Pan-Europe Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. [These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return figures would have been [ ], respectively.] [Ivy Asia Pacific Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy International Small Companies Fund and Ivy South America Fund had no outstanding Advisor Class shares as of December 31, 1999.] CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of a particular Fund for a specified period. Cumulative total return quotations reflect changes in the price of a Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in Fund shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of a Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. The Cumulative Total Return figures for Ivy China Region Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. The Cumulative Total Return figures for Ivy Developing Nations Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. The Cumulative Total Return figures for Ivy Global Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. The Cumulative Total Return figures for Ivy Global Science & Technology Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. The Cumulative Total Return figures for Ivy International Fund II's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. The Cumulative Total Return figures for Ivy Pan-Europe Fund's Advisor Class shares for the period from inception through December 31, 1999 and the one-year period ended December 31, 1999 were [ ], respectively. [Ivy Asia Pacific Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy International Small Companies Fund and Ivy South America Fund had no outstanding Advisor Class shares as of December 31, 1999.] OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of that Fund's portfolio and operating expenses of that Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding a Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of each Fund's shares and the risks associated with each Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. Each Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS Each Fund's portfolio of investments as of December 31, 1999, Statement of Assets and Liabilities as of December 31, 1999, Statement of Operations for the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for the fiscal year ended December 31, 1999, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in each Fund's December 31, 1999 Annual Report to shareholders, are incorporated by reference into this SAI. APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New York, 1997).] MOODY'S: (a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality, carrying the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa are judged by Moody's to be of high quality by all standards. Aa bonds are rated lower than Aaa bonds because margins of protection may not be as large as those of Aaa bonds, or fluctuations of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than those applicable to Aaa securities. Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa by Moody's are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. (b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Issuers within this Prime category may be given ratings 1, 2 or 3, depending on the relative strengths of these factors. The designation of Prime-1 indicates the highest quality repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have a strong ability for repayment while issuers voted Prime-3 are deemed to have an acceptable ability for repayment. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings described below may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA is judged by S&P to have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A by S&P has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to pay interest and repay principal. Although such bonds normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than debt in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. The commercial paper rating A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. For commercial paper with an A-2 rating, the capacity for timely payment on issues is satisfactory, but not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment, but are more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. The C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. IVY GROWTH FUND IVY GROWTH WITH INCOME FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND series of IVY FUND Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION May 1, 2000 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of twenty-one fully managed portfolios, each of which (except for Ivy South America Fund and Ivy International Strategic Bond Fund) is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B and C shares of Ivy Growth Fund, Ivy Growth with Income Fund and Ivy US Emerging Growth Fund, and to the Class A, B, C and I shares of Ivy US Blue Chip Fund (each a "Fund"). The other seventeen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds dated May 1, 2000 (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. The Funds also offer Advisor Class Shares, which are described in a separate prospectus and SAI that may also be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS GENERAL INFORMATION........................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS................................1 IVY GROWTH FUND...................................................1 INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND.......................2 IVY GROWTH WITH INCOME FUND.......................................4 INVESTMENT RESTRICTIONS FOR IVY GROWTH WITH INCOME FUND...........5 IVY BLUE CHIP FUND................................................7 INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND.................8 IVY US EMERGING GROWTH FUND......................................10 INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND..........11 COMMON STOCKS....................................................13 CONVERTIBLE SECURITIES...........................................14 SMALL COMPANIES..................................................14 INITIAL PUBLIC OFFERINGS.........................................15 ADJUSTABLE RATE PREFERRED STOCKS.................................15 DEBT SECURITIES..................................................15 IN GENERAL.......................................................15 INVESTMENT-GRADE DEBT SECURITIES.................................15 LOW-RATED DEBT SECURITIES........................................16 U.S. GOVERNMENT SECURITIES.......................................17 ZERO COUPON BONDS................................................18 FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES..........18 ILLIQUID SECURITIES..............................................19 FOREIGN SECURITIES...............................................19 EMERGING MARKETS.................................................20 FOREIGN CURRENCIES...............................................22 FOREIGN CURRENCY EXCHANGE TRANSACTIONS...........................22 REPURCHASE AGREEMENTS............................................23 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS................24 COMMERCIAL PAPER.................................................24 BORROWING........................................................24 WARRANTS.........................................................25 REAL ESTATE INVESTMENT TRUSTS (REITS)............................25 OPTIONS TRANSACTIONS.............................................25 IN GENERAL.......................................................25 WRITING OPTIONS ON INDIVIDUAL SECURITIES.........................26 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES......................27 PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.............27 RISKS OF OPTIONS TRANSACTIONS....................................28 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...............29 IN GENERAL.......................................................29 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS................31 SECURITIES INDEX FUTURES CONTRACTS...............................31 RISKS OF SECURITIES INDEX FUTURES................................32 COMBINED TRANSACTIONS............................................33 PORTFOLIO TURNOVER........................................................34 TRUSTEES AND OFFICERS.....................................................34 INVESTMENT ADVISORY AND OTHER SERVICES....................................47 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.............47 DISTRIBUTION SERVICES............................................50 RULE 12B-1 DISTRIBUTION PLANS....................................51 CUSTODIAN........................................................56 FUND ACCOUNTING SERVICES.........................................56 TRANSFER AGENT AND DIVIDEND PAYING AGENT.........................57 ADMINISTRATOR....................................................57 AUDITORS.........................................................57 BROKERAGE ALLOCATION......................................................57 CAPITALIZATION AND VOTING RIGHTS..........................................59 SPECIAL RIGHTS AND PRIVILEGES.............................................60 AUTOMATIC INVESTMENT METHOD......................................61 EXCHANGE OF SHARES...............................................61 INITIAL SALES CHARGE SHARES......................................61 CONTINGENT DEFERRED SALES CHARGE SHARES..........................62 LETTER OF INTENT.................................................64 RETIREMENT PLANS.................................................64 INDIVIDUAL RETIREMENT ACCOUNTS:..................................65 ROTH IRAS:.......................................................66 QUALIFIED PLANS:.................................................67 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"):................68 SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS:........................68 SIMPLE PLANS:....................................................68 REINVESTMENT PRIVILEGE...........................................68 RIGHTS OF ACCUMULATION...........................................69 SYSTEMATIC WITHDRAWAL PLAN.......................................69 GROUP SYSTEMATIC INVESTMENT PROGRAM..............................70 REDEMPTIONS...............................................................71 CONVERSION OF CLASS B SHARES..............................................72 NET ASSET VALUE...........................................................72 TAXATION 74 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..........75 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...........76 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...............76 DEBT SECURITIES ACQUIRED AT A DISCOUNT...........................77 DISTRIBUTIONS....................................................77 DISPOSITION OF SHARES............................................78 FOREIGN WITHHOLDING TAXES........................................79 BACKUP WITHHOLDING...............................................79 PERFORMANCE INFORMATION...................................................80 AVERAGE ANNUAL TOTAL RETURN......................................80 CUMULATIVE TOTAL RETURN..........................................88 IVY GROWTH WITH INCOME FUND...............................................89 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION............91 FINANCIAL STATEMENTS......................................................92 APPENDIX A................................................................93 GENERAL INFORMATION Each Fund is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. Ivy Growth Fund commenced operations (Class A shares) on March 1, 1984. The inception dates for Ivy Growth Fund's Class B and Class C shares were October 22, 1993 and April 30, 1996, respectively. Ivy Growth with Income Fund commenced operations (Class A shares) on April 1, 1984. The inception dates for the Fund's Class B and Class C shares were October 22, 1993, and April 30, 1996, respectively. Ivy US Blue Chip Fund commenced operations (Class A, B and C shares) on November 2, 1998. Ivy US Emerging Growth Fund commenced operations (Class A shares) on March 3, 1993. The inception dates for Ivy US Emerging Growth Fund's Class B and Class C shares were October 22, 1993 and April 30, 1996, respectively. Descriptions in this SAI of a particular investment practice or technique in which any Fund may engage or a financial instrument which any Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing each Fund's portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in a Fund's overall investment strategy, from time to time have a material impact on that Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund's asset level or other circumstances beyond a Fund's control, will not be considered a violation. IVY GROWTH FUND Ivy Growth Fund's principal investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. Under normal conditions, the Fund invests at least 65% of its total assets in common stocks and securities convertible into common stocks. The Fund invests primarily in equity securities of domestic corporations with low price-earnings ratios and rising earnings. Approximately one half of the Fund's portfolio is comprised of companies that have had a proven and consistent record of earnings, but whose prices appear to be low relative to their underlying profitability. The other half is invested in equity securities of small and medium-sized U.S. companies that are in the early stages of their life cycles and that are believed to have the potential to increase their sales and earnings at above average rates. Ivy Growth Fund may invest up to 5% of its net assets in foreign equity securities, primarily those traded in European, Pacific Basin and Latin American markets, some of which may be emerging markets involving special risks, as described below. Individual foreign securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. When circumstances warrant, the Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poors Ratings Services ("S&P"), or, if unrated, considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may invest up to 5% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may borrow up to 10% of the value of its total assets, but only for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may enter into forward foreign currency contracts and may also invest in equity real estate investment trusts. Ivy Growth Fund may write put options, with respect to not more than 10% of the value of its net assets, on securities and stock indices, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its net assets. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND Ivy Growth Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by its Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Growth Fund has adopted the following additional restrictions which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) engage in the purchase and sale of puts, calls, straddles or spreads (except to the extent described in the Prospectus and in this SAI); (iii) invest in companies for the purpose of exercising control of management; (iv) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (v) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (vi) invest more than 5% of the value of its total assets in the securities of issuers which are not readily marketable; (vii) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (viii) purchase securities on margin; (ix) sell securities short; (x) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940; or (xi) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidation. Under the 1940 Act, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY GROWTH WITH INCOME FUND Ivy Growth with Income Fund's principal investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. The Fund has some emphasis on dividend-paying stocks. Under normal conditions, the Fund invests at least 65% of its total assets in common stocks and securities convertible into common stocks. The Fund invests primarily in equity securities of domestic corporations with low price-earnings ratios and rising earnings, focusing on established, financially secure firms with capitalizations over $100 million and more than three years of operating history. Ivy Growth with Income Fund may invest up to 25% of its net assets in foreign equity securities, primarily those traded in European, Pacific Basin and Latin American markets, some of which may be emerging markets involving special risks, as described below. Individual foreign securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. When circumstances warrant, the Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if unrated, considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may borrow up to 10% of the value of its total assets, but only for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may enter into forward foreign currency contracts. The Fund may also invest in equity real estate investment trusts. The Fund may write put options, with respect to not more than 10% of the value of its net assets, on securities and stock indices, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its net assets. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY GROWTH WITH INCOME FUND Ivy Growth with Income Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Growth with Income Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) engage in the purchase and sale of puts, calls, straddles or spreads (except of the extent described in the Prospectus and in this SAI); (iii) invest in companies for the purpose of exercising control of management; (iv) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (v) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (vi) invest more than 5% of the value of its total assets in the securities of issuers which are not readily marketable; (viii) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (ix) purchase securities on margin; (x) sell securities short; (xi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act; or (xii) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidation. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY US BLUE CHIP FUND Ivy US Blue Chip Fund's investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. Under normal conditions, the Fund will invest at least 65% of its total assets in the common stocks of companies determined by IMI to be "Blue Chip." Generally, the median market capitalization of companies targeted for investment by the Fund will be greater than $5 billion. For investment purposes, however, Blue Chip companies are those companies whose market capitalization is greater than $1 billion at the time of investment. Blue Chip companies are those which occupy (or in IMI's judgment have the potential to occupy) leading market positions that are expected to be maintained or enhanced over time. Such companies tend to have a lengthy history of profit growth and dividend payment, and a reputation for quality management structure, products and services. Securities of Blue Chip companies generally are considered to be highly liquid because, compared to those of lesser-capitalized companies, more shares of these securities are outstanding in the marketplace and their trading volume tends to be higher. When circumstances warrant, Ivy US Blue Chip Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if unrated, are considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. Ivy US Blue Chip Fund may borrow up to 10% of the value of its total assets, for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may also invest in equity real estate investment trusts ("REITs"). The Fund may write put options on securities and stock indices, with respect to not more than 10% of the value of its net assets, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its total assets. The Fund may purchase interest rate and other financial futures contracts and related options. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND Ivy US Blue Chip Fund's investment objective, as set forth in the Prospectus under "Investment Objectives and Policies," and the investment restrictions set forth below are fundamental policies of the Fund and may not be changed with respect to the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy US Blue Chip Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (ii) invest in oil, gas or other mineral leases or exploration or development programs; (iii) engage in the purchase and sale of puts, calls, straddles or spreads (except to the extent described in the Prospectus and in this SAI); (iv) invest in companies of the purpose of exercising control of management; (v) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (vi) purchase or retain securities of any company if officers and Trustees of the Trust and officers and directors of IMI, MIMI or Mackenzie Financial Corporation who individually own more than 1/2 of 1% of the securities of that company together own beneficially more than 5% of such securities; (vii) invest more than 15% of its net assets in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any such instrument that, due to the existence of a trading market or to other factors, is liquid; (viii) purchase securities of another investment company, except in connection with a merger, consolidation, reorganization or acquisition or assets, and except that the Fund may (i) invest in securities of other investment companies subject to the restrictions set forth in Section 12(d)(1) of the 1940 Act and (ii) acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on subparagraphs (f) and (g) of Section 12(d)(1) of the 1940 Act; (ix) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, the deposit or payment by the Fund of initial or variation margins in connection with futures contracts or related options transactions is not considered the purchase of a security on margin; (x) sell securities short; (xi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than shares of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act; or (xii) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, as a temporary measure for extraordinary or emergency purposes or where investment transactions might advantageously require it, or except in connection with reverse repurchase agreements, provided that the Fund maintains net asset coverage of at least 300% for all borrowings. Under the 1940 Act, the Fund is permitted, subject to the Fund's investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including REITs. Despite fundamental investment restriction (vi) above, the Fund may invest in interest rate and other financial futures contracts and related options. IVY US EMERGING GROWTH FUND Ivy US Emerging Growth Fund's principal investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. Under normal conditions, the Fund invests at least 65% of its total assets in common stocks and securities convertible into common stocks. The Fund invests primarily in equity securities of small- and medium-sized companies, that are in the early stages of their life cycles and that IMI believes have the potential to become major enterprises. These may include securities issued pursuant to initial public offerings ("IPOs"). The Fund may engage in short-term trading. Ivy US Emerging Growth Fund may invest up to 25% of its net assets in foreign equity securities, primarily those traded in European, Pacific Basin and Latin American markets, some of which may be emerging markets involving special risks, as described below. Individual foreign securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. When circumstances warrant, the Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated as least Baa by Moody's or BBB by S&P, or, if unrated, are considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may borrow up to 10% of the value of its total assets, but only for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may enter into forward foreign currency contracts. Ivy US Emerging Growth Fund may write put options, with respect to not more than 10% of the value of its net assets, on securities and stock indices, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its net assets. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND Ivy US Emerging Growth Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy US Emerging Growth Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (ii) invest in oil, gas or other mineral leases or exploration or development programs; (iii) engage in the purchase and sale of puts, calls, straddles or spreads (except to the extent described in the Prospectus and in this SAI); (iv) invest in companies for the purpose of exercising control of management; (v) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (vi) purchase or retain securities of any company if officers and Trustees of the Trust and officers and directors of Ivy Management, Inc. (the Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial Corporation who individually own more than 1/2 of 1% of the securities of that company together own beneficially more than 5% of such securities; (vii) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that a fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (viii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the 1940 Act and rules thereunder or by any state in which its shares are registered; (ix) purchase securities on margin; (x) sell securities short; (xi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940; or (xii) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including REITs. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which each Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stock changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock, although typically not as much as the price of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. SMALL COMPANIES Investing in smaller company stocks involves certain special considerations and risks that are not usually associated with investing in larger, more established companies. For example, the securities of small or new companies may be subject to more abrupt or erratic market movements because they tend to be thinly traded and are subject to a greater degree to changes in the issuer's earnings and prospects. Small companies also tend to have limited product lines, markets or financial resources. Transaction costs in smaller company stocks also may be higher than those of larger companies. INITIAL PUBLIC OFFERINGS Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. A Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is limited, so it is likely that IPO securities will represent a smaller component of a Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). ADJUSTABLE RATE PREFERRED STOCKS Adjustable rate preferred stocks have a variable dividend, generally determined on a quarterly basis according to a formula based upon a specified premium or discount to the yield on a particular U.S. Treasury security rather than a dividend which is set for the life of the issue. Although the dividend rates on these stocks are adjusted quarterly and their market value should therefore be less sensitive to interest rate fluctuations than are other fixed income securities and preferred stocks, the market values of adjustable rate preferred stocks have fluctuated and can be expected to continue to do so in the future. DEBT SECURITIES IN GENERAL. Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). The Funds may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or BBB by S&P, and comparable unrated securities (commonly referred to as "high yield" or "junk" bonds), including many emerging markets bonds, are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The lower the ratings of corporate debt securities, the more their risks render them like equity securities. Such securities carry a high degree of risk (including the possibility of default or bankruptcy of the issuers of such securities), and generally involve greater volatility of price and risk of principal and income (and may be less liquid) than securities in the higher rating categories. (See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics.) Lower rated and unrated securities are especially subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. During an economic downturn or period of rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to service their principal and interest payment obligations. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. Changes in interest rates may have a less direct or dominant impact on high yield bonds than on higher quality issues of similar maturities. However, the price of high yield bonds can change significantly or suddenly due to a host of factors including changes in interest rates, fundamental credit quality, market psychology, government regulations, U.S. economic growth and, at times, stock market activity. High yield bonds may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, a Fund may have to replace the security with a lower yielding security. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market or because of a decline in the value of such securities. A thin trading market may limit the ability of each Fund to accurately value high yield securities in the Fund's portfolio, could adversely affect the price at which that Fund could sell such securities, and cause large fluctuations in the daily net asset value of that Fund's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of low-rated debt securities, especially in a thinly traded market. When secondary markets for high yield securities become relatively less liquid, it may be more difficult to value the securities, requiring additional research and elements of judgment. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high yield securities market can change suddenly and unexpectedly, and even recently issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. For these reasons, it is the policy of IMI not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of each Fund's investment objectives by investment in such securities may be more dependent on IMI's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the best interest of a Fund to retain or dispose of such security. However, should any individual bond held by a Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. Prices for high yield securities may be affected by legislative and regulatory developments. For example, Federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, Congress has from time to time considered legislation that would restrict or eliminate the corporate tax deduction for interest payments in these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayments tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayment, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association and Student Loan Marketing Association. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in a Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to a Fund on a current basis, but is in effect compounded, the value of such securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. ILLIQUID SECURITIES Each Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of a Fund. It is each Fund's policy that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between a Fund's decision to sell a restricted or illiquid security and the point at which that Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, a Fund may be required to bear all or part of the registration expenses. A Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares ("GDSs") and related depository instruments, and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in each Fund's domestic investments. Although IMI intends to invest each Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which each Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, each Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of each Fund to make intended security purchases due to settlement problems could cause that Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. It may be more difficult for each Fund's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the United States and foreign countries may be less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. IMI seeks to mitigate the risks to each Fund associated with the foregoing considerations through investment variation and continuous professional management. EMERGING MARKETS Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund could have significant investments in securities traded in emerging markets. Investors should recognize that investing in such countries involves special considerations, in addition to those set forth above, that are not typically associated with investing in United States securities and that may affect each Fund's performance favorably or unfavorably. In recent years, many emerging market countries around the world have undergone political changes that have reduced government's role in economic and personal affairs and have stimulated investment and growth. Historically, there is a strong direct correlation between economic growth and stock market returns. While this is no guarantee of future performance, IMI believes that investment opportunities (particularly in the energy, environmental services, natural resources, basic materials, power, telecommunications and transportation industries) may result within the evolving economies of emerging market countries from which each Fund and its shareholders will benefit. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. Such risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies that may restrict each Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until relatively recently in certain Eastern European countries, of a capital market structure or market-oriented economy; (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries; and (viii) the possibility that currency devaluations could adversely affect the value of each Fund's investments. Further, many emerging markets have experienced and continue to experience high rates of inflation. Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, each Fund could lose a substantial portion of any investments it has made in the affected countries. Further, few (if any) accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial in relation to the actual market values and may be adverse to a Fund's net asset value. Certain Eastern European countries that do not have well-established trading markets are characterized by an absence of developed legal structures governing private and foreign investments and private property. In addition, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of each Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of a Fund's cash and securities, that Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs and may purchase forward foreign currency contracts. Because of these factors, the value of the assets of each Fund as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and each Fund may incur costs in connection with conversions between various currencies. Although each Fund's custodian values the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. Each Fund will do so from time to time, however, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Each Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. Because Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund normally will be invested in both U.S. and foreign securities markets, changes in these Funds' share price may have a low correlation with movements in U.S. markets. Each Fund's share price will reflect the movements of the different stock and bond markets in which it is invested (both U.S. and foreign), and of the currencies in which the investments are denominated. Thus, the strength or weakness of the U.S. dollar against foreign currencies may account for part of each Fund's investment performance. U.S. and foreign securities markets do not always move in step with each other, and the total returns from different markets may vary significantly. Foreign currencies in which each Fund's assets are denominated may be devalued against the U.S. dollar, resulting in a loss to the Fund. FOREIGN CURRENCY EXCHANGE TRANSACTIONS Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may enter into forward foreign currency contracts in order to protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date (usually less than a year), and typically is individually negotiated and privately traded by currency traders and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for commissions, they do realize a profit based on the difference between the price at which they are buying and selling various currencies. Although these contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. While each Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for each Fund than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Fund. An imperfect correlation of this type may prevent each Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may purchase currency forwards and combine such purchases with sufficient cash or short-term securities to create unleveraged substitutes for investments in foreign markets when deemed advantageous. Each Fund may also combine the foregoing with bond futures or interest rate futures contracts to create the economic equivalent of an unhedged foreign bond position. Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which each Fund has or in which each Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to a Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which a Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, each Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. Each Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, each Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, each Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. Each Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by a Fund. Each Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. Each Fund may invest in commercial paper that is rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on each Fund's net asset value of any increase or decrease in the value of each Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of each Fund's borrowings will be fixed, each Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. WARRANTS The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. However, prices of warrants do not necessarily move in a tandem with the prices of the underlying securities, and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by a Fund were not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. REAL ESTATE INVESTMENT TRUSTS (REITS) A REIT is a corporation, trust or association that invests in real estate mortgages or equities for the benefit of its investors. REITs are dependent upon management skill, may not be diversified and are subject to the risks of financing projects. Such entities are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs indirectly through Ivy Growth Fund, Ivy Growth with Income Fund, or Ivy US Blue Chip Fund, a shareholder will bear not only his or her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligation in an OTC transaction, the Fund would negotiate directly with the counterparty. Each Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that a Fund has written lapses unexercised, because the Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by any Fund, are taxable as ordinary income. See "Taxation." Each Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by each Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When a Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may write (sell) covered call options on the Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. Each Fund may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the Fund for the options). In view of the investment objectives of each Fund, each Fund generally would write call options only in circumstances where the investment adviser to the Fund does not anticipate significant appreciation of the underlying security in the near future or has otherwise determined to dispose of the security. A "covered" call option means generally that so long as a Fund is obligated as the writer of a call option, the Fund will (i) own the underlying securities subject to the option, or (ii) have the right to acquire the underlying securities through immediate conversion or exchange of convertible preferred stocks or convertible debt securities owned by the Fund. Although each Fund receives premium income from these activities, any appreciation realized on an underlying security will be limited by the terms of the call option. Each Fund may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, each Fund receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period, if the option is exercised. So long as a Fund remains obligated as a writer of a call option, it forgoes the opportunity to profit from increases in the market price of the underlying security above the exercise price of the option, except insofar as the premium represents such a profit (and retains the risk of loss should the value of the underlying security decline). PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may purchase a put option on an underlying security owned by the Fund as a defensive technique in order to protect against an anticipated decline in the value of the security. Each Fund, as the holder of the put option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that the Fund must pay. These costs will reduce any profit a Fund might have realized had it sold the underlying security instead of buying the put option. The premium paid for the put option would reduce any capital gain otherwise available for distribution when the security is eventually sold. The purchase of put options will not be used by any Fund for leverage purposes. Each Fund may also purchase a put option on an underlying security that it owns and at the same time write a call option on the same security with the same exercise price and expiration date. Depending on whether the underlying security appreciates or depreciates in value, the Fund would sell the underlying security for the exercise price either upon exercise of the call option written by it or by exercising the put option held by it. A Fund would enter into such transactions in order to profit from the difference between the premium received by the Fund for the writing of the call option and the premium paid by the Fund for the purchase of the put option, thereby increasing the Fund's current return. A Fund may write (sell) put options on individual securities only to effect a "closing sale transaction." PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Each Fund may purchase and sell (write) put and call options on securities indices. An index assigns relative values to the securities included in the index and the index fluctuates with changes in the market values of the securities so included. Call options on indices are similar to call options on individual securities, except that, rather than giving the purchaser the right to take delivery of an individual security at a specified price, they give the purchaser the right to receive cash. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars, times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The multiplier for an index option performs a function similar to the unit of trading for a stock option. It determines the total dollar value per contract of each point in the difference between the exercise price of an option and the current level of the underlying index. A multiplier of 100 means that a one-point difference will yield $100. Options on different indices have different multipliers. When a Fund writes a call or put option on a stock index, the option is "covered," in the case of a call, or "secured," in the case of a put, if the Fund maintains in a segregated account with the Custodian cash or liquid securities equal to the contract value. A call option is also covered if a Fund holds a call on the same index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. A put option is also "secured" if a Fund holds a put on the same index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written or (ii) less than the exercise price of the put written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of a U.S. option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities (or cash in the case of an index option) at the exercise price. If a put or call option purchased by a Fund is not sold when it has remaining value, and if the market price of the underlying security (or index), in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security (or index) is purchased to hedge against price movements in a related security (or securities), the price of the put or call option may move more or less than the price of the related security (or securities). In this regard, there are differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position. Finally, trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. Closing transactions can be made for OTC options only by negotiating directly with the counterparty or by a transaction in the secondary market, if any such market exists. Transfer of an OTC option is usually prohibited absent the consent of the original counterparty. There is no assurance that a Fund will be able to close out an OTC option position at a favorable price prior to its expiration. An OTC counterparty may fail to deliver or to pay, as the case may be. In the event of insolvency of the counterparty, a Fund might be unable to close out an OTC option position at any time prior to its expiration. Although a Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. When conducted outside the U.S., options transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in each Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and liquidity. Each Fund's options activities also may have an impact upon the level of its portfolio turnover and brokerage commissions. See "Portfolio Turnover." Each Fund's success in using options techniques depends, among other things, on IMI's ability to predict accurately the direction and volatility of price movements in the options and securities markets, and to select the proper type, timing of use and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS IN GENERAL. Each Fund may enter into futures contracts and options on futures contracts for hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a commodity at a specified price and time. When a purchase or sale of a futures contract is made by a Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or liquid securities ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day each Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, each Fund will mark-to-market its open futures position. Each Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery of offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. When purchasing a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund, or, if lower, may cover the difference with cash or short-term securities. When selling a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). When selling a call option on a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, equal the total market value of the futures contract underlying the call option. Alternatively, a Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund, or covering the difference if the price is higher. When selling a put option on a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that equal the purchase price of the futures contract less any margin on deposit. Alternatively, a Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund, or, if lower, the Fund may hold securities to cover the difference. RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in any Fund's portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an active secondary market will continue to exist. Currency futures contracts and options thereon may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such position also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. SECURITIES INDEX FUTURES CONTRACTS Each Fund may enter into securities index futures contracts as an efficient means of regulating that Fund's exposure to the equity markets. Each Fund will not engage in transactions in futures contracts for speculation, but only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. The value of a unit is the current value of the stock index. For example, the S&P 500 Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The index futures contract specifies that no delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if a Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If a Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). RISKS OF SECURITIES INDEX FUTURES. Each Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. Each Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, each Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although each Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when a Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, a Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund generally realizes a capital gain, or if it is more, a Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. Each Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. Each Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. When purchasing an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund. When selling an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in cash or liquid assets in a segregated account with the Fund's custodian). COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions and multiple currency transactions (including forward currency contracts) and some combination of futures, options and currency transactions ("component" transactions), instead of a single transaction, as part of a single or combined strategy when, in the opinion of IMI, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. PORTFOLIO TURNOVER Each Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining a Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. TRUSTEES AND OFFICERS Each Fund's Board of Trustees (the "Board") is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering each Fund's day-to-day operations. The Trustees and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: POSITION WITH BUSINESS AFFILIATIONS NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS John S. Anderegg, Jr. Trustee Chairman, Dynamics Research 60 Concord Street Corp. (instruments and controls); Wilmington, MA 01887 Director, Burr-Brown Corp. Age: 75 (operational amplifiers); Director, Metritage Incorporated (level measuring instruments); Trustee of Mackenzie Series Trust (1992-1998). James W. Broadfoot President President, Ivy Management Inc. 700 South Federal Hwy. and (1996-present); Senior Vice Suite 300 Trustee President, Ivy Management, Inc. Boca Raton, FL 33432 (1992-1996); Director and Senior Age: 56 Vice President, Mackenzie [*Deemed to be an Investment Management Inc. (1995- "interested person" present); Senior Vice President, of the Trust, as Mackenzie Investment Management defined under the Inc. (1990-1995). 1940 Act.] Paul H. Broyhill Trustee Chairman, BMC Fund, Inc. 800 Hickory Blvd. (1983-present); Chairman, Golfview Park-Box 500 Broyhill Family Foundation, Lenoir, NC 28645 Inc. (1983-Present); Chairman Age: 75 and President, Broyhill Investments, Inc. (1983-present); Chairman, Broyhill Timber Resources (1983-present); Management of a personal portfolio of fixed-income and equity investments (1983- present); Trustee of Mackenzie Series Trust (1988-1998); Director of The Mackenzie Funds Inc. (1988-1995). Keith J. Carlson Chairman Senior Vice President of 700 South Federal Hwy. and Mackenzie Investment Management, Suite 300 Trustee Inc. (1996-present); Senior Vice Boca Raton, FL 33432 President and Director of Age: 42 Mackenzie Investment Management, [*Deemed to be an Inc. (1994-1996); Senior Vice "interested person" President and Treasurer of of the Trust, as defined Mackenzie Investment Management, under the Inc. (1989-1994); Senior Vice 1940 Act.] President and Director of Ivy Management Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management Inc. (1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); Senior Vice President and Director, Ivy Mackenzie Services Corp. (1996- present); President and Director of Ivy Mackenzie Services Corp. (1993-1996); Trustee and President of Mackenzie Series Trust (1996-1998); Vice President of Mackenzie Series Trust (1994- 1998); Treasurer of Mackenzie Series Trust (1985-1994); President, Chief Executive Officer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Executive Vice President and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); Trustee of Mackenzie Series Trust (1996-1998). Stanley Channick Trustee President and Chief Executive 11 Bala Avenue Officer, The Whitestone Bala Cynwyd, PA 19004 Corporation (insurance agency); Age: 75 Chairman, Scott Management Company (administrative services for insurance companies); President, The Channick Group (consultants to insurance companies and national trade associations); Trustee of Mackenzie Series Trust (1994- 1998); Director of The Mackenzie Funds Inc. (1994-1995). Roy J. Glauber Trustee Mallinckrodt Professor of Lyman Laboratory Physics, Harvard University of Physics (1974-present); Trustee of Harvard University Mackenzie Series Trust (1994- Cambridge, MA 02138 1997). Age: 73 Dianne Lister Trustee President and Chief Executive 556 University Avenue Officer, The Hospital for Sick Toronto, Ontario L4J 2T4 Children Foundation (1993- present); Chief Operating Officer, The Hospital for Sick Children Foundation (1992-1993); Executive Vice President, The Hospital for Sick Children Foundation (1991-1992). Joseph G. Rosenthal Trustee Chartered Accountant 110 Jardin Drive (1958-present); Trustee of Unit #12 Mackenzie Series Trust Concord, Ontario Canada (1985-1998); Director of L4K 2T7 The Mackenzie Funds Inc. Age: 64 (1987-1995). Richard N. Silverman Trustee Director, Newton-Wellesley 18 Bonnybrook Road Hospital; Director, Beth Waban, MA 02168 Israel Hospital; Director, Age: 75 Boston Ballet; Director, Boston Children's Museum; Director, Brimmer and May School. J. Brendan Swan Trustee President, Airspray Inter- 4701 North Federal Hwy. national, Inc.; Joint Managing Suite 465 Director, Airspray International Pompano Beach, FL 33064 B.V. (an environmentally sensitive Age: 69 packaging company); Director of Polyglass LTD.; Director, The Mackenzie Funds Inc. (1992-1995); Trustee of Mackenzie Series Trust (1992-1998). Edward M. Tighe Trustee Chief Executive Officer, CITCO 5900 N. Andrews Avenue Technology Management, Inc. Suite 700 ("CITCO") (computer software Ft. Lauderdale, FL 33309 development and consulting) (1999-present); President and Director, Global Technology Management, Inc. (CITCO's predecessor) (1992-1998); Managing Director, Global Mutual Fund Services, Ltd. (financial services firm); President, Director and Chief Executive Officer, Global Mutual Fund Services, Inc. (1994-present). C. William Ferris Secretary/ Senior Vice President, 700 South Federal Hwy. Treasurer Chief Financial Officer Suite 300 and Secretary/Treasurer Boca Raton, FL 33432 of Mackenzie Investment Age: 54 Management Inc. (1995-present); Senior Vice President, Finance and Administration/Compliance Officer of Mackenzie Investment Management Inc. (1989-1994); Senior Vice President, Secretary/ Treasurer and Clerk of Ivy Management Inc. (1994- present); Vice President, Finance/Administration and Compliance Officer of Ivy Management Inc. (1992-1994); Senior Vice President, Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); President and Director of Ivy Mackenzie Services Corp. (1996-present); Secretary/Treasurer and Director of Ivy Mackenzie Services Corp. (1993-1996); Secretary/Treasurer of The Mackenzie Funds Inc. (1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994-1998). COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 1999) PENSION OR TOTAL RETIREMENT ESTIMATED COMPENSATION BENEFITS ANNUAL FROM TRUST AGGREGATE ACCRUED AS BENEFITS AND FUND NAME, COMPENSATION PART OF FUND UPON COMPLEX PAID POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES John S. Anderegg, Jr. (Trustee) James W. Broadfoot (Trustee and President) Paul H. Broyhill (Trustee) Keith J. Carlson (Trustee and Chairman) Stanley Channick (Trustee) Frank W. DeFriece, Jr. (Trustee) Dianne Lister (Trustee) Roy J. Glauber (Trustee) Joseph G. Rosenthal (Trustee) Richard N. Silverman (Trustee) J. Brendan Swan (Trustee) C. William Ferris (Secretary/ Treasurer) *The Fund complex consists of Ivy Fund and Mackenzie Solutions. To the knowledge of the Trust, as of ____________, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions [to be completed by amendment]. As of ____________, the Officers and Trustees of the Trust as a group owned beneficially or of record less than 1% of the outstanding Class A, Class B, Class C, Class I and Advisor Class shares of each of the twenty-one Ivy funds that are series of the Trust, except [to be completed by amendment]. PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted to engage in personal securities transactions, subject to the requirements and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the "Code of Ethics"). The Code of Ethics is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the Funds. Among other things, the Code of Ethics, which IMI believes complies with Rule 17j-1 under the 1940 Act, prohibits certain types of transactions absent prior approval, applies to portfolio managers, traders, research analysts and others involved in the investment advisory process, and imposes time periods during which personal transactions in certain securities may not be made , and requires the submission of duplicate broker confirmations and quarterly and annual reporting of securities transactions. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate officers or compliance personnel. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI provides business management and investment advisory services to the Fund pursuant to a Business Management and Investment Advisory Agreement (the "Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation organized under the laws of Ontario whose shares are listed for trading on the TSE. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund. IMI also currently acts as manager and investment adviser to the other series of Ivy Fund and the five series of Mackenzie Solutions. IMI also provides business management services to Ivy Global Natural Resources Fund. The Agreement obligates IMI to make investments for the account of each Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. IMI also determines the securities to be purchased or sold by each Fund and places orders with brokers or dealers who deal in such securities. Under the Agreement, IMI also provides certain business management services. IMI is obligated to (1) coordinate with each Fund's Custodian and monitor the services it provides to each Fund; (2) coordinate with and monitor any other third parties furnishing services to each Fund; (3) provide each Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund's needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by each Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with each Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. Ivy Growth Fund Pays IMI a monthly fee for providing business management and investment advisory services that is equal, on an annual basis, to 0.85% of the first $350 million of the Fund's average net assets, reduced to 0.75% on its average net assets in excess of $350 million. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth Fund paid IMI fees of $2,794,304, $2,722,314 and [ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, and [ ], respectively. Ivy Growth with Income Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of .75% of the Fund's average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth with Income Fund paid IMI fees of $624,013, $702,361 and [ ], respectively. Ivy US Blue Chip Fund pays IMI a monthly fee for providing business management and investment advisory SERVICES AT AN ANNUAL RATE OF [0.75%] of the Fund's average net assets. During the fiscal years ended December 31, 1998 and 1999, Ivy US Blue Chip Fund paid IMI fees of $1,687 and [ ], respectively. During the fiscal years ended December 31, 1998 and 1999, IMI reimbursed Fund expenses in the amounts of $11,052 and [ ], respectively. Ivy US Emerging Growth Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 0.85% of the Fund's average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy US Emerging Growth Fund paid IMI fees of $973,756, $985,816 and [ ], respectively. Under the Agreement, the Trust pays the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. IMI currently limits the total operating expenses (excluding Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) of Ivy Growth Fund, Ivy Growth with Income Fund and Ivy US Emerging Growth Fund to an annual rate of 1.95% of each Fund's average net assets and of Ivy US Blue Chip Fund to an annual rate of 1.15% of the Fund's average net assets, which may lower each Fund's expenses and increase its yield. The Agreement will continue in effect with respect to each Fund from year to year, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the Independent Trustees and (ii) either (a) by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund or (b) by the vote of a majority of the entire Board. If the question of continuance of the Agreement (or adoption of any new agreement) with respect to any Fund is presented to the shareholders, continuance (or adoption) shall be effected only if approved by the affirmative vote of a majority of the outstanding voting securities of that Fund. See "Capitalization and Voting Rights." The Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of the Fund, on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. The Agreement shall terminate automatically in the event of its assignment. DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of Ivy Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. Each Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund's behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at the Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Pursuant to the Distribution Agreement, IMDI is entitled to deduct a commission on all Class A Fund shares sold equal to the difference, if any, between the public offering price, as set forth in each Fund's then-current prospectus, and the net asset value on which such price is based. Out of that commission, IMDI may reallow to dealers such concessions as IMDI may determine from time to time. In addition, IMDI is entitled to deduct a CDSC on the redemption of Class A shares sold without an initial sales charge and Class B and Class C shares, in accordance with, and in the manner set forth in, the Prospectus. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Growth Fund [ ] in sales commissions, of which [ ] was retained after dealer allowance. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Growth Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemption of Class C shares of Ivy Growth Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Growth with Income Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Growth with income Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Growth with Income Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy US Blue Chip Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy US Blue Chip Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy US Blue Chip Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy US Emerging Growth Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscla year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy US Emerging Growth Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy US Emerging Growth Fund. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to any Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to the Fund or by the Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund represent an equal pro rata interest in the Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of each Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) each Fund's Class B shares will convert automatically into Class A shares of that Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of each Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to each Fund's Class A, Class B and Class C shares (each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees have concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan will benefit each Fund and its shareholders. The Trustees of the Trust believe that the Plans should result in greater sales and/or fewer redemptions of each Fund's shares, although it is impossible to know for certain the level of sales and redemptions of the Fund's shares in the absence of a Plan or under an alternative distribution arrangement. Under each Plan, each Fund pays IMDI a service fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the average daily net assets attributable to its Class A, Class B or Class C shares, as the case may be. This fee is a reimbursement to IMDI for service fees paid by IMDI. The services for which service fees may be paid include, among other things, advising clients or customers regarding the purchase, sale or retention of shares of each Fund, answering routine inquiries concerning the Fund and assisting shareholders in changing options or enrolling in specific plans. Pursuant to each Plan, service fee payments made out of or charged against the assets attributable to a Fund's Class A, Class B or Class C shares must be in reimbursement for services rendered for or on behalf of the affected class. The expenses not reimbursed in any one month may be reimbursed in a subsequent month. The Class A Plan does not provide for the payment of interest or carrying charges as distribution expenses. Under each Fund's Class B and Class C Plans, each Fund also pays IMDI a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets attributable to its Class B or Class C shares. This fee is paid to IMDI as compensation and is not dependent on IMDI's expenses incurred. IMDI may reallow to dealers all or a portion of the service and distribution fees as IMDI may determine from time to time. The distribution fee compensates IMDI for expenses incurred in connection with activities primarily intended to result in the sale of each Fund's Class B or Class C shares, including the printing of prospectuses and reports for persons other than existing shareholders and the preparation, printing and distribution of sales literature and advertising materials. Pursuant to each Class B and Class C Plan, IMDI may include interest, carrying or other finance charges in its calculation of distribution expenses, if not prohibited from doing so pursuant to an order of or a regulation adopted by the SEC. Among other things, each Plan provides that (1) IMDI will submit to the Board at least quarterly, and the Trustees will review, written reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made; (2) each Plan will continue in effect only so long as such continuance is approved at least annually, and any material amendment thereto is approved, by the votes of a majority of the Board, including the Independent Trustees, cast in person at a meeting called for that purpose; (3) payments by any Fund under each Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares of the relevant class; and (4) while each Plan is in effect, the selection and nomination of Independent Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust. IMDI may make payments for distribution assistance and for administrative and accounting services from resources that may include the management fees paid by each Fund. IMDI also may make payments (such as the service fee payments described above) to unaffiliated broker-dealers, banks, investment advisers, financial institutions and other entities for services rendered in the distribution of a Fund's shares. To qualify for such payments, shares may be subject to a minimum holding period. However, no such payments will be made to any dealer or broker or other party if at the end of each year the amount of shares held does not exceed a minimum amount. The minimum holding period and minimum level of holdings will be determined from time to time by IMDI. A report of the amount expended pursuant to each Plan, and the purposes for which such expenditures were incurred, must be made to the Board for its review at least quarterly. The Class B Plan and underwriting agreement were amended effective March 16, 1999 to permit IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other distribution-related expenses. In connection with such amendments, the Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the amendments to the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. During the fiscal year ended December 31, 1999, Ivy Growth Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy Growth Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, Ivy Growth Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Growth Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers [ ]; compensation to sales personnel [ ]; seminars and meetings [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Growth Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers [ ]; compensation to sales personnel [ ]; seminars and meetings [ ]; travel, and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Growth Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers [ ]; compensation to sales personnel [ ]; seminars and meetings [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, Ivy Growth with Income Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy Growth with Income Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, Ivy Growth with Income Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Growth with Income Fund: advertising: [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ] compensation to dealers [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ] and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Growth with Income Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Growth with Income Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, Ivy US Blue Chip Fund paid IMDI [ ] pursuant to its CLASS A plan. During the fiscal year ended December 31, 1999, Ivy US Blue Chip Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, Ivy US Blue Chip Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy US Blue CHip Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy US Blue Chip Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy US Blue Chip Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ender December 31, 1999, IVY US Emerging Growth Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy US Emerging Growth Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, Ivy US Emerging Growth Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy US Emerging Growth Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy US Emerging Growth Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy US Emerging Growth Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; Compensation to dealers; [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. Each Plan may be amended at any time with respect to the class of shares of the Fund to which the Plan relates by vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of considering such amendment. Each Plan may be terminated at any time with respect to the class of shares of the Fund to which the Plan relates, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of that class. If the Distribution Agreement or the Distribution Plans are terminated (or not renewed) with respect to any of the Ivy funds (or class of shares thereof), each may continue in effect with respect to any other fund (or Class of shares thereof) as to which they have not been terminated (or have been renewed). CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the assets of each Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of each Fund's foreign securities. With respect to each Fund, the Custodian may receive, as partial payment for its services to the Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to a Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for each Fund. As compensation for those services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of each Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. During the fiscla year ended December 31, 1999, Ivy Growth Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Growth with Income Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy US Blue Chip Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy US Emerging Growth fund paid MIMI [ ] under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor Class account. In addition, each Fund pays a monthly fee at an annual rate of $4.58 per account that is closed plus certain out-of-pocket expenses. Ivy US Blue Chip Fund pays a monthly fee at an annual rate of $10.25 per open Class I account. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Growth Fund totaled [ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Growth with Income Fund totaled [ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy US Blue Chip Fund totaled [ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy US Emerging Growth Fund totaled [ ]. Certain broker-dealers that maintain shareholder accounts with each Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by IMSC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. IMSC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to each Fund. As compensation for these services, each Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets with respect to Class A, Class B, Class C and Advisor Class shares. Ivy US Blue Chip fund pays MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I. Such fees for the fiscal year ended December 31, 1999 for Ivy Growth Fund totaled [ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Growth with Income Fund totaled [ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy US Blue Chip Fund totaled [ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy US Emerging Growth Fund totaled [ ]. Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of each Fund. AUDITORS [ ], independent public accountants, has been selected as auditors for the Trust. The audit services performed by [ ] include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of each Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by any Fund for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI attempts to deal directly with the principal market makers, except in those circumstances where IMI believes that a better price and execution are available elsewhere. IMI selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI in servicing all of its accounts. In addition, not all of these services may be used by IMI in connection with the services it provides to the Funds or the Trust. IMI may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI will not, however, execute brokerage transactions other than at the best price and execution. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth Fund paid brokerage commission of $683,881, $907,345 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth with Income Fund paid brokerage commissions of $155,283, $378,887 and [ ], respectively. During the fiscal years ended December 31, 1998 and 1999, Ivy US Blue Chip Fund paid brokerage commissions of $1,806 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy US Emerging Growth Fund paid brokerage commissions of $583,738, $658,613 and [ ], respectively. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI deems to be a desirable investment for that Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for Fund shares with securities and may discontinue accepting securities as payment for Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and each Fund's shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate any Fund upon written notice to shareholders. This might occur, for example, if a Fund did not reach or failed to maintain an economically viable size. The Trustees have authorized twenty-one series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for the Funds, Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund and Ivy [ ] Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundil Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy US Blue Chip Fund and Ivy [ ] Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of that Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of that Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to that Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Amended and Restated Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Amended and Restated Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of any Fund held personally liable for the obligations of that Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund, and Ivy [ ] Fund (the other seventeen series of the Trust). (Effective April 18, 1997, Ivy International Fund suspended the offer of its shares to new investors). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to IMSC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds (except Ivy International Fund unless they have an existing Ivy International Fund account). Before effecting an exchange, shareholders of a Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their Class A shares ("outstanding Class A shares") for Class A shares of another Ivy fund ("new Class A Shares") on the basis of the relative net asset value per Class A share, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A shares and the sales charge payable at the time of the exchange on the new Class A shares. (The additional sales charge will be waived for Class A shares that have been invested for a period of 12 months or longer.) Class A shareholders may also exchange their shares for shares of Ivy Money Market Fund (no initial sales charge will be assessed at the time of such an exchange). Each Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of The Legend Group and United Planners Financial Services of America, Inc. This privilege will apply only to Class A Shares of a Fund that are purchased using all or a portion of the proceeds obtained by such clients through redemptions of shares of a mutual fund (other than one of the Funds) on which a sales charge was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer privilege must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV transfer privilege also applies to Fund shares purchased directly by clients of such dealers as long as their accounts are linked to the dealer's master account. The normal service fee, as described in the "Initial Sales Charge Alternative - Class A Shares" section of the Prospectus, will be paid to those dealers in connection with these purchases. IMDI may from time to time pay a special cash incentive to The Legend Group or United Planners Financial Services of America, Inc. in connection with sales of shares of a Fund by its registered representatives under the NAV transfer privilege. Additional information on sales charge reductions or waivers may be obtained from IMDI at the address listed on the cover of this Statement of Additional Information. On August 19, 1999, Ivy US Emerging Growth Fund and Hudson Capital Appreciation Fund ("Hudson Capital") entered into an Agreement and Plan of Reorganization (the "Plan") pursuant to which all or substantially all of the assets of Hudson Capital would be acquired by Ivy US Emerging Growth Fund in exchange solely for Class A and Class B voting shares of beneficial interest of Ivy US Emerging Growth Fund (the "Reorganization"). In connection with the Reorganization, the parties agreed that no sales charge would be imposed in connection with the issuance of Ivy US Emerging Growth Fund shares to shareholders of Hudson Capital pursuant to the Plan. In addition, the parties agreed that former Class N shareholders of Hudson Capital would be exempt from the initial sales charge on additional purchases of Class A shares of Ivy US Emerging Growth Fund. CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders may exchange their Class A shares that are subject to a contingent deferred sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy fund ("new Class A shares") on the basis of the relative net asset value per Class A share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class A shares. Class A shareholders of any Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC period following an exchange if such period is longer than the CDSC period, if any, applicable to the new Class A shares. For purposes of computing the CDSC that may be payable upon the redemption of the new Class A shares, the holding period of the outstanding Class A shares is "tacked" onto the holding period of the new Class A shares. CLASS B: Class B shareholders may exchange their Class B shares ("outstanding Class B shares") for Class B shares of another Ivy fund ("new Class B shares") on the basis of the relative net asset value per Class B share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class B shares. Class B shareholders of any Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC schedule (or period) following an exchange if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the new Class B shares. Class B shares of any Fund acquired through an exchange of Class B shares of another Ivy fund will be subject to that Fund's CDSC schedule (or period) if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the Ivy fund from which the exchange was made. For purposes of both the conversion feature and computing the CDSC that may be payable upon the redemption of the new Class B shares (prior to conversion), the holding period of the outstanding Class B shares is "tacked" onto the holding period of the new Class B shares. The following CDSC table applies to Class B shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund. CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE YEAR SINCE PURCHASE First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I: Subject to the restrictions set forth in the following paragraph, Class I shareholders may exchange their outstanding Class I shares for Class I shares of another Ivy fund on the basis of the relative net asset value per share. ALL CLASSES: The minimum value of shares which may be exchanged into an Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case of Class I). No exchange out of any Fund (other than by a complete exchange of all Fund shares) may be made if it would reduce the shareholder's interest in that Fund to less than $1,000 ($250,000 in the case of Class I). Each exchange will be made on the basis of the relative net asset value per share of the Ivy funds involved in the exchange next computed following receipt by IMSC of telephone instructions by IMSC or a properly executed request. Exchanges, whether written or telephonic, must be received by IMSC by the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) to receive the price computed on the day of receipt. Exchange requests received after that time will receive the price next determined following receipt of the request. The exchange privilege may be modified or terminated at any time, upon at least 60 days' notice to the extent required by applicable law. See "Redemptions." An exchange of shares between any of the Ivy funds will result in a taxable gain or loss. Generally, this will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. However, in certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on an exchange. See "Taxation." With limited exceptions, gain realized by a tax-deferred retirement plan will not be taxable to the plan and will not be taxed to the participant until distribution. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. LETTER OF INTENT Reduced sales charges apply to initial investments in Class A shares of each Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may be submitted by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account. See the Account Application in the Prospectus. Any investor may submit a Letter of Intent stating that he or she will invest, over a period of 13 months, at least $50,000 in Class A shares of any Fund. A Letter of Intent may be submitted at the time of an initial purchase of Class A shares of a Fund or within 90 days of the initial purchase, in which case the Letter of Intent will be back dated. A shareholder may include, as an accumulation credit, the value (at the applicable offering price) of all Class A shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy or the Trust to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of such letter before signing. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from IMSC, who may impose a charge for establishing the account. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, an eligible individual may contribute up to the lesser of $2,000 or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are both employed, and both are under age 70-1/2, each may set up his or her own IRA within these limits. If both earn at least $2,000 per year, the maximum potential contribution is $4,000 per year for both. For years after 1996, the result is similar even if one spouse has no earned income; if the joint earned income of the spouses is at least $4,000, a contribution of up to $2,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (or his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includable in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses and amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAS: Shares of each Fund also may be used as a funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $2,000 per year to a Roth IRA. The maximum contribution amount diminishes and gradually falls to zero for single filers with adjusted gross incomes ranging from $95,000 to $110,000. Married couples earning less than $150,000 combined, and filing jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum contribution amount for married couples filing jointly phases out from $150,000 to $160,000. An individual whose adjusted gross income exceeds the maximum phase-out amount cannot contribute to a Roth IRA. An eligible individual can contribute money to a traditional IRA and a Roth IRA as long as the total contribution to all IRAs does not exceed $2,000. Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA (other than the amount of nondeductible contributions) are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: reaching age 59 1/2, death, disability, deductible medical expenses, the purchase of health insurance for certain unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $30,000 or 25% of compensation or earned income to a money purchase pension plan or to a combination profit sharing and money purchase pension plan arrangement each year on behalf of each participant. To be deductible, total contributions to a profit sharing plan generally may not exceed 15% of the total compensation or earned income of all participants in the plan, and total contributions to a combination money purchase-profit sharing arrangement generally may not exceed 25% of the total compensation or earned income of all participants. The amount of compensation or earned income of any one participant that may be included in computing the deduction is limited (generally to $150,000 for benefits accruing in plan years beginning after 1993, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Custodial Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's separation from service. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay tax-deductible medical expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Trust in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from IMSC. Distributions from the 403(b)(7) Account may be made only following death, disability, separation from service, attainment of age 59-1/2, or incurring a financial hardship. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical expenses; (4) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (5) rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account. SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP accounts generally are subject to all rules applicable to IRA accounts, except the deduction limits, and are subject to certain employee participation requirements. No new salary reduction SEPs ("SARSEPs") may be established after 1996, but existing SARSEPs may continue to be maintained, and non-salary reduction SEPs may continue to be established as well as maintained after 1996. SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k) for years after 1996. An employee can make pre-tax salary reduction contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if the employer maintains or maintained any other qualified retirement plan with respect to which any contributions or benefits have been credited. REINVESTMENT PRIVILEGE Shareholders who have redeemed Class A shares of a Fund may reinvest all or a part of the proceeds of the redemption back into Class A shares of the same Fund at net asset value (without a sales charge) within 60 days from the date of redemption. This privilege may be exercised only once. The reinvestment will be made at the net asset value next determined after receipt by IMSC of the reinvestment order accompanied by the funds to be reinvested. No compensation will be paid to any sales personnel or dealer in connection with the transaction. Any redemption is a taxable event. A loss realized on a redemption generally may be disallowed for tax purposes if the reinvestment privilege is exercised within 30 days after the redemption. In certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on a redemption if the reinvestment privilege is exercised. See "Taxation." RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of each Fund. See "Initial Sales Charge Alternative -- Class A Shares" in the Prospectus. The reduced sales charge is applicable to investments made at one time by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account (including a pension, profit sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code). Rights of Accumulation are also applicable to current purchases of all of the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons enumerated above, where the aggregate quantity of Class A shares of such funds (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) and of any other investment company distributed by IMDI, previously purchased or acquired and currently owned, determined at the higher of current offering price or amount invested, plus the Class A shares being purchased, amounts to $50,000 or more for all funds other than Ivy Bond Fund; or $100,000 or more for Ivy Bond Fund. At the time an investment takes place, IMSC must be notified by the investor or his or her dealer that the investment qualifies for the reduced sales charge on the basis of previous investments. The reduced sales charge is subject to confirmation of the investor's holdings through a check of the particular fund's records. SYSTEMATIC WITHDRAWAL PLAN A shareholder (except shareholders with accounts in Class I) may establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or by delivery to IMSC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to IMSC of all share certificates then outstanding in such shareholder's name, properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisers. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each while the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal Plan is in effect may be disadvantageous to the investor because of applicable initial sales charges or CDSCs. An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to IMSC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of each Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Trust does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of a Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Trust reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Trust and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that for each twelve-month period (or portion thereof) that the account is maintained. The Trust may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Trust reserves the right to change these fees from time to time without advance notice. Class A shares of each Fund are made available to Merrill Lynch Daily K Plan (the "Plan") participants at NAV without an initial sales charge if: (i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets invested in broker/dealer funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are made available pursuant to a Service Agreement between Merrill Lynch and the fund's principal underwriter or distributor and in funds advised or managed by MLAM (collectively, the "Applicable Investments"); (ii) the Plan is recordkept on a daily valuation basis by an independent recordkeeper whose services are provided through a contract or alliance arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets, excluding money market funds, invested in Applicable Investments; or (iii) the Plan has 500 or more eligible employees, as determined by Merrill Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. Alternatively, Class B shares of each Fund are made available to Plan participants at NAV without a CDSC if the Plan conforms with the requirements for eligibility set forth in (i) through (iii) above but either does not meet the $3 million asset threshold or does not have 500 or more eligible employees. Plans recordkept on a daily basis by Merrill Lynch or an independent recordkeeper under a contract with Merrill Lynch that are currently investing in Class B shares of any Fund convert to Class A shares once the Plan has reached $5 million invested in Applicable Investments, or 10 years after the date of the initial purchase by a participant under the Plan--the Plan will receive a Plan level share conversion. REDEMPTIONS Shares of each Fund are redeemed at their net asset value next determined after a proper redemption request has been received by IMSC, less any applicable CDSC. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by a Fund is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of a Fund. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1,000 in any Fund for a period of more than 12 months. All accounts below that minimum will be redeemed simultaneously when MIMI deems it advisable. The $1,000 balance will be determined by actual dollar amounts invested by the shareholder, unaffected by market fluctuations. The Trust will notify any such shareholder by certified mail of its intention to redeem such account, and the shareholder shall have 60 days from the date of such letter to invest such additional sums as shall raise the value of such account above that minimum. Should the shareholder fail to forward such sum within 60 days of the date of the Trust's letter of notification, the Trust will redeem the shares held in such account and transmit the redemption in value thereof to the shareholder. However, those shareholders who are investing pursuant to the Automatic Investment Method will not be redeemed automatically unless they have ceased making payments pursuant to the plan for a period of at least six consecutive months, and these shareholders will be given six-months' notice by the Trust before such redemption. Shareholders in a qualified retirement, pension or profit sharing plan who wish to avoid tax consequences must "rollover" any sum so redeemed into another qualified plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. Delivery of the proceeds of a wire redemption request of $250,000 or more may be delayed by any Fund for up to seven days if deemed appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. Each Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, a Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. CONVERSION OF CLASS B SHARES As described in the Prospectus, Class B shares of each Fund will automatically convert to Class A shares of that Fund, based on the relative net asset values per share of the two classes, no later than the month following the eighth anniversary of the initial issuance of such Class B shares of the Fund occurs. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance shall mean: (1) the date on which such Class B shares were issued, or (2) for Class B shares obtained through an exchange, or a series of exchanges, (subject to the exchange privileges for Class B shares) the date on which the original Class B shares were issued. For purposes of conversion of Class B shares, Class B shares purchased through the reinvestment of dividends and capital gain distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those shares in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through the reinvestment of dividends and capital gain distributions. NET ASSET VALUE The net asset value per share of each Fund is computed by dividing the value of that Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining a Fund's aggregate net assets, receivables are valued at their realizable amounts. Each Fund's liabilities, if not identifiable as belonging to a particular class of that Fund, are allocated among the Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in the Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted sale price on the exchange on which the security is principally traded. If no sale is reported at that time, the average between the last bid and asked price (the "Calculated Mean") is used. Unless otherwise noted herein, the value of a foreign security is determined in its national currency as of the normal close of trading on the foreign exchange on which it is traded or as of the close of regular trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, eastern time, on the day the value of the foreign security is determined. All other securities for which OTC market quotations are readily available are valued at the Calculated Mean. A debt security normally is valued on the basis of quotes obtained from at least two dealers (or one dealer who has made a market in the security) or pricing services that take into account appropriate valuation factors. Interest is accrued daily. Money market instruments are valued at amortized cost, which the Board believes approximates market value. An exchange-traded option is valued at the last sale price on the exchange on which it is principally traded, if available, and otherwise is valued at the last sale price on the other exchange(s). If there were no sales on any exchange, the option shall be valued at the Calculated Mean, if possible, and otherwise at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC option is valued at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of a Fund's portfolio securities occur between the time when a foreign exchange closes and the time when that Fund's net asset value is calculated (see following paragraph), such securities may be valued at fair value as determined by IMI in accordance with procedures approved by the Board. Portfolio securities are valued (and net asset value per share is determined) as of the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) on each day the Exchange is open for trading. The Exchange and the Trust's offices are expected to be closed, and net asset value will not be calculated, on the following national business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days when either or both of a Fund's Custodian or the Exchange close early as a result of a partial holiday or otherwise, the Trust reserves the right to advance the time on that day by which purchase and redemption requests must be received. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on each Fund's net asset value next determined after your instructions are received in proper form by IMSC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since each Fund normally invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, each Fund's net asset value may change on days when shareholders will not be able to purchase or redeem that Fund's shares. The sale of each Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in a Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to each Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax adviser about the tax consequences to them of investing in any Fund. The Funds are not managed for tax-efficiency. Each Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, each Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies). As a regulated investment company, each Fund generally will not be subject to U.S. Federal income tax on its income and gains that it distributes to shareholders, if at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and the excess of any short-term capital gains over long-term capital losses) for the taxable year is distributed. Each Fund intends to distribute all such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each Fund must distribute during each calendar year, (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirements. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December of the year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year the distributions are declared, rather than the calendar year in which the distributions are received. OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS The taxation of equity options and OTC options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by each Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to the Fund. If a Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by a Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by a Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Some of the options, futures and foreign currency forward contracts in which each Fund may invest may be "section 1256 contracts." Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; however, as described below, foreign currency gains or losses arising from certain section 1256 contracts are ordinary in character. Also, section 1256 contracts held by each Fund at the end of each taxable year (and on certain other dates prescribed in the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. The transactions in options, futures and forward contracts undertaken by each Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains or losses realized by each Fund. In addition, losses realized by each Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to each Fund are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by any Fund, which is taxed as ordinary income when distributed to shareholders. Each Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a fund that did not engage in such transactions. Notwithstanding any of the foregoing, each Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of each Fund's taxable year, if certain conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time each Fund accrues receivables or liabilities denominated in a foreign currency and the time that Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of each Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES Each Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If a Fund receives a so-called "excess distribution" with respect to PFIC stock, that Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which a Fund held the PFIC shares. Each Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. Each Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Each Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, each Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. Each Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by each Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, each Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Each Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. Each Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by that Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by each Fund. DISTRIBUTIONS Distributions of investment company taxable income are taxable to a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends paid by each Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received from U.S. corporations by that Fund, may qualify for the dividends received deduction. However, the revised alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by each Fund as capital gain dividends, are taxable to shareholders as long-term capital gains whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares; such distributions are not eligible for the dividends received deduction. Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the net asset value of a share of that Fund on the distribution date. A distribution of an amount in excess of a Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Shareholders will be notified annually as to the U.S. Federal tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the net asset value of the shares received. If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Shareholders should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. DISPOSITION OF SHARES Upon a redemption, sale or exchange of his or her shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and, if so, will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss realized on a redemption sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having been received by the shareholder with respect to such shares. In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of a Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the same Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by each Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of any Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible and may elect to "pass-through" to the Fund's shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of a Fund's taxable year whether the foreign taxes paid by the Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if a Fund makes the election described in the preceding paragraph, the source of the Fund's income flows through to its shareholders. With respect to each Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from each Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of a Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if a Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers. BACKUP WITHHOLDING Each Fund will be required to report to the Internal Revenue Service ("IRS") all taxable distributions as well as gross proceeds from the redemption of the Fund's shares, except in the case of certain exempt shareholders. All such distributions and proceeds will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1) the shareholder fails to furnish the Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amounts required to be withheld. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. This discussion does not purport to deal with all of the tax consequences applicable to the Funds or shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in any Fund. PERFORMANCE INFORMATION Performance information for the classes of shares of each Fund may be compared, in reports and promotional literature, to: (i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors may compare each Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, a widely used independent research firm that ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in a Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. Performance rankings are based on historical information and are not intended to indicate future performance. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of each Fund will be expressed in terms of the average annual compounded rate of return that would cause a hypothetical investment in that class of the Fund made on the first day of a designated period to equal the ending redeemable value ("ERV") of such hypothetical investment on the last day of the designated period, according to the following formula: P(1 + T){superscript n} = ERV Where: P = a hypothetical initial payment of $1,000 to purchase shares of a specific class T = the average annual total return of shares of that class n = the number of years ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. For purposes of the above computation for each Fund, it is assumed that all dividends and capital gains distributions made by the Fund are reinvested at net asset value in additional shares of the same class during the designated period. In calculating the ending redeemable value for Class A shares and assuming complete redemption at the end of the applicable period, the maximum 5.75% sales charge is deducted from the initial $1,000 payment and, for Class B and Class C shares, the applicable CDSC imposed upon redemption of Class B or Class C shares held for the period is deducted. Standardized Return quotations for each Fund do not take into account any required payments for federal or state income taxes. Standardized Return quotations for Class B shares for periods of over eight years will reflect conversion of the Class B shares to Class A shares at the end of the eighth year. Standardized Return quotations are determined to the nearest 1/100 of 1%. Each Fund may, from time to time, include in advertisements, promotional literature or reports to shareholders or prospective investors total return data that are not calculated according to the formula set forth above ("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in calculating Non-Standardized Return; a sales charge, if deducted, would reduce the return. The following table summarizes the calculation of Standardized and Non-Standardized Return for the Class A, Class B and Class C shares of each Fund for the periods indicated. In determining the average annual total return for a specific class of shares of each Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of each Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of the Fund. IVY GROWTH FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999 Five Years ended December 31, 1999 Ten Years ended December 31, 1999 Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999 Five Years ended December 31, 1999 Ten Years ended December 31, 1999 Inception [#] to year ended December 31, 1999[7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for Class A shares of Ivy Growth Fund was March 1, 1984. The inception dates for Class B and Class C shares of the Fund were October 22, 1993 and April 30, 1996, respectively. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five yar periods ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class B shares was October 22, 1993, there were no Class B shares outstanding for the duration of the ten-year period ended December 31, 1999.) [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no Class C shares outstanding for the duration of the five and ten year periods ended December 31, 1999.) [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class B shares was October 22, 1993, there were no Class B shares outstanding for the duration of the ten-year period ended December 31, 1999.) [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no Class C shares outstanding for the duration of the five and ten year periods ended December 31, 1999.) [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY GROWTH WITH INCOME FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999 Five years ended December 31, 1999 Ten years ended December 31, 1999: Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999: Five years ended December 31, 1999 Ten years ended December 31, 1999: Inception [#] to year ended December 31, 1999 [7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for Ivy Growth with Income Fund (Class A shares) was April 1, 1984; the inception date for Class B shares of the Fund was October 22, 1993; and the inception date for the Class C shares of the Fund was April 30, 1996. The inception of Class C shares of the Fund coincided with the redesignation as "Class D" those shares of Ivy Growth with Income Fund that were initially issued as "Ivy Growth with Income Fund -- Class C" to shareholders of Mackenzie Growth & Income Fund, a former series of the Company, in connection with the reorganization between that fund and Ivy Growth with Income Fund, which shares are not offered for sale to the public. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class B shares was October 22, 1993, there were no outstanding Class B shares during the duration of the ten year period ended December 31, 1999.) [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no outstanding Class C shares during the five and ten year periods ended December 31, 1999.) [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class B shares was October 22, 1993, there were no outstanding Class B shares during the duration of the ten year period ended December 31, 1999.) [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no outstanding Class C shares during the five and ten year periods ended December 31, 1999.) [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY US BLUE CHIP FUND STANDARD RETURN[*] Year ended December 31, 1999 CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] Inception [#] to year ended December 31, 1999[8] NON-STANDARD RETURN[**] Year ended December 31, 1999 CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Inception [#] to year ended December 31, 1999[8] [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for Ivy US Blue Chip Fund was November 2, 1998. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the one-year period ended December 31, 1999 and the period from inception through December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the one-year period ended December 31, 1999 and the period from inception through December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the one-year period ended December 31, 1999 and the period from inception through December 31, 1999 would have been [ ], respectively. [4] Class I Shares are not subject to an initial sales charge or a CDSC; therefore, the Standardized and Non-Standardized Return figures would be identical. However, there were no outstanding Class I Shares during the periods indicated. [5] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the one-year period ended December 31, 1999 and the period from inception through December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the one-year period ended December 31, 1999 and the period from inception through December 31, 1999 would have been [ ], respectively. [7] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the one-year period ended December 31, 1999 and the period from inception through December 31, 1999 would have been [ ], respectively. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. IVY US EMERGING GROWTH FUND STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] Year ended December 31, 1999 Five years ended December 31, 1999 Inception [#] to year ended December 31, 1999[7]: NON-STANDARDIZED RETURN[**] CLASS A[4] CLASS B[5] CLASS C[6] Year ended December 31, 1999 Five years ended December 31, 1999 Inception [#] to year ended December 31, 1999 [7]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for Ivy US Emerging Growth Fund was March 3, 1993. Class A shares of the Fund were first offered for sale to the public on April 30, 1993, and Class B shares of the Fund were first offered for sale to the public on October 22, 1993. The inception date for the Class C shares of the Fund was April 30, 1996. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no outstanding Class C shares for the duration of the five year period ended December 31, 1999.) [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. (Since the inception date for Class C shares was April 30, 1996, there were no outstanding Class C shares for the duration of the five year period ended December 31, 1999.) [7] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of each Fund for a specified period. Cumulative total return quotations reflect changes in the price of each Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in the same Fund's shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of each Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. IVY GROWTH FUND The following table summarizes the calculation of Cumulative Total Return for Ivy Growth Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for Ivy Growth Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] Class A Class B Class C [*] The inception date for Ivy Growth Fund (Class A shares) was April 1, 1984; the inception date for the Class B shares of the Fund was October 22, 1993. The inception date for Class C shares of the Fund was April 30, 1996. IVY GROWTH WITH INCOME FUND The following table summarizes the calculation of Cumulative Total Return for Ivy Growth with Income Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for Ivy Growth with Income Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] Class A Class B Class C [*] The inception date for Ivy Growth with Income Fund (Class A shares) was April 1, 1984; the inception date for the Class B shares of the Fund was October 22, 1993. The inception date for Class C shares of the Fund was April 30, 1996. IVY US BLUE CHIP FUND The following table summarizes the calculation of Cumulative Total Return for Ivy US Blue Chip Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for Ivy US Blue Chip Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION[*] Class A Class B Class C Class I [*] The inception date for Ivy US Blue Chip Fund was November 2, 1998. IVY US EMERGING GROWTH FUND The following table summarizes the calculation of Cumulative Total Return for Ivy US Emerging Growth Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR FIVE YEARS SINCE INCEPTION[*] Class A Class B Class C The following table summarizes the calculation of Cumulative Total Return for Ivy US Emerging Growth Fund for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR FIVE YEARS SINCE INCEPTION[*] Class A Class B Class C [*] The inception date for Ivy US Emerging Growth Fund was March 3, 1993. Class A shares of the Fund were first offered for sale to the public on April 30, 1993, and Class B shares were first offered for sale to the public on October 22, 1993. The inception date for Class C shares was April 30, 1996. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of the Fund's portfolio and operating expenses of the Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding each Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of each Fund's shares and the risks associated with each Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. Each Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS Each Fund's portfolio of investments as of December 31, 1999, Statement of Assets and Liabilities as of December 31, 1999, Statement of Operations for the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for the fiscal year ended December 31, 1999, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in the Fund's December 31, 1999 Annual Report to shareholders, are incorporated by reference into this SAI. APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New York, 1997).] MOODY'S: (a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality, carrying the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa are judged by Moody's to be of high quality by all standards. Aa bonds are rated lower than Aaa bonds because margins of protection may not be as large as those of Aaa bonds, or fluctuations of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than those applicable to Aaa securities. Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa by Moody's are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. (b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Issuers within this Prime category may be given ratings 1, 2 or 3, depending on the relative strengths of these factors. The designation of Prime-1 indicates the highest quality repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have a strong ability for repayment while issuers voted Prime-3 are deemed to have an acceptable ability for repayment. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings described below may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA is judged by S&P to have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A by S&P has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to pay interest and repay principal. Although such bonds normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than debt in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. The commercial paper rating A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. For commercial paper with an A-2 rating, the capacity for timely payment on issues is satisfactory, but not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment, but are more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. The C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. IVY GROWTH FUND IVY GROWTH WITH INCOME FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND series of IVY FUND Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION ADVISOR CLASS SHARES May 1, 2000 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of twenty-one fully managed portfolios, each of which (except for Ivy South America Fund and Ivy International Strategic Bond Fund) is diversified. This Statement of Additional Information ("SAI") relates to the Advisor Class shares of Ivy Growth Fund, Ivy Growth with Income Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (each a "Fund"). The other seventeen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds' Advisor Class shares dated May 1, 2000 (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. Advisor Class shares are only offered to certain investors (see the Prospectus). The Funds also offer Class A, B and C shares (and Class I shares, in the case of Ivy US Blue Chip Fund), which are described in a separate prospectus and SAI that may also be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS GENERAL INFORMATION..........................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1 IVY GROWTH FUND.....................................................1 IVY GROWTH WITH INCOME FUND.........................................4 IVY US BLUE CHIP FUND...............................................7 IVY US EMERGING GROWTH FUND........................................10 COMMON STOCKS......................................................13 CONVERTIBLE SECURITIES.............................................13 SMALL COMPANIES....................................................14 INITIAL PUBLIC OFFERINGS...........................................15 ADJUSTABLE RATE PREFERRED STOCKS...................................15 DEBT SECURITIES....................................................15 ILLIQUID SECURITIES................................................18 FOREIGN SECURITIES.................................................19 EMERGING MARKETS...................................................20 FOREIGN CURRENCIES.................................................21 FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................22 REPURCHASE AGREEMENTS..............................................23 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................23 COMMERCIAL PAPER...................................................24 BORROWING..........................................................24 WARRANTS...........................................................24 REAL ESTATE INVESTMENT TRUSTS (REITS)..............................24 OPTIONS TRANSACTIONS...............................................25 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................29 SECURITIES INDEX FUTURES CONTRACTS.................................31 PORTFOLIO TURNOVER..........................................................33 TRUSTEES AND OFFICERS.......................................................33 INVESTMENT ADVISORY AND OTHER SERVICES......................................46 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............46 DISTRIBUTION SERVICES..............................................48 CUSTODIAN..........................................................49 FUND ACCOUNTING SERVICES...........................................50 TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................50 ADMINISTRATOR......................................................50 AUDITORS...........................................................51 BROKERAGE ALLOCATION........................................................51 CAPITALIZATION AND VOTING RIGHTS............................................52 SPECIAL RIGHTS AND PRIVILEGES...............................................54 AUTOMATIC INVESTMENT METHOD........................................54 EXCHANGE OF SHARES.................................................54 RETIREMENT PLANS...................................................55 SYSTEMATIC WITHDRAWAL PLAN.........................................59 GROUP SYSTEMATIC INVESTMENT PROGRAM................................59 REDEMPTIONS.................................................................60 NET ASSET VALUE.............................................................61 TAXATION 62 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............63 DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................65 DISTRIBUTIONS......................................................66 DISPOSITION OF SHARES..............................................66 FOREIGN WITHHOLDING TAXES..........................................67 BACKUP WITHHOLDING.................................................68 PERFORMANCE INFORMATION.....................................................68 FINANCIAL STATEMENTS........................................................71 APPENDIX A..................................................................72 GENERAL INFORMATION Each Fund is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. Ivy Growth Fund commenced operations on March 1, 1984. Ivy Growth with Income Fund commenced operations on April 1, 1984. Ivy US Blue Chip Fund commenced operations on November 2, 1998. Ivy US Emerging Growth Fund commenced operations on March 3, 1993. Advisor Class shares of each Fund (except Ivy US Blue Chip Fund) were first offered on January 1, 1998. Advisor Class shares of Ivy US Blue Chip Fund were first offered on November 2, 1998. Descriptions in this SAI of a particular investment practice or technique in which any Fund may engage or a financial instrument which any Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing each Fund's portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in the Fund's overall investment strategy, from time to time have a material impact on that Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund's asset level or other circumstances beyond a Fund's control, will not be considered a violation. IVY GROWTH FUND Ivy Growth Fund's principal investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. Under normal conditions, the Fund invests at least 65% of its total assets in common stocks and securities convertible into common stocks. The Fund invests primarily in equity securities of domestic corporations with low price-earnings ratios and rising earnings. Approximately one half of the Fund's portfolio is comprised of companies that have had a proven and consistent record of earnings, but whose prices appear to be low relative to their underlying profitability. The other half is invested in equity securities of small and medium-sized U.S. companies that are in the early stages of their life cycles and that are believed to have the potential to increase their sales and earnings at above average rates. Ivy Growth Fund may invest up to 5% of its net assets in foreign equity securities, primarily those traded in European, Pacific Basin and Latin American markets, some of which may be emerging markets involving special risks, as described below. Individual foreign securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. When circumstances warrant, the Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poors Ratings Services ("S&P"), or, if unrated, considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may invest up to 5% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may borrow up to 10% of the value of its total assets, but only for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may enter into forward foreign currency contracts and may also invest in equity real estate investment trusts. Ivy Growth Fund may write put options, with respect to not more than 10% of the value of its net assets, on securities and stock indices, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its net assets. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND Ivy Growth Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by its Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Growth Fund has adopted the following additional restrictions which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) engage in the purchase and sale of puts, calls, straddles or spreads (except to the extent described in the Prospectus and in this SAI); (iii) invest in companies for the purpose of exercising control of management; (iv) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (v) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (vi) invest more than 5% of the value of its total assets in the securities of issuers which are not readily marketable; (vii) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (viii) purchase securities on margin; (ix) sell securities short; (x) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940; or (xi) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidation. Under the 1940 Act, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY GROWTH WITH INCOME FUND Ivy Growth with Income Fund's principal investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. The Fund has some emphasis on dividend-paying stocks. Under normal conditions, the Fund invests at least 65% of its total assets in common stocks and securities convertible into common stocks. The Fund invests primarily in equity securities of domestic corporations with low price-earnings ratios and rising earnings, focusing on established, financially secure firms with capitalizations over $100 million and more than three years of operating history. Ivy Growth with Income Fund may invest up to 25% of its net assets in foreign equity securities, primarily those traded in European, Pacific Basin and Latin American markets, some of which may be emerging markets involving special risks, as described below. Individual foreign securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. When circumstances warrant, the Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if unrated, considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may borrow up to 10% of the value of its total assets, but only for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may enter into forward foreign currency contracts. The Fund may also invest in equity real estate investment trusts. The Fund may write put options, with respect to not more than 10% of the value of its net assets, on securities and stock indices, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its net assets. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY GROWTH WITH INCOME FUND Ivy Growth with Income Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy Growth with Income Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) engage in the purchase and sale of puts, calls, straddles or spreads (except of the extent described in the Prospectus and in this SAI); (iii) invest in companies for the purpose of exercising control of management; (iv) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (v) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (vi) invest more than 5% of the value of its total assets in the securities of issuers which are not readily marketable; (vii) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (viii) purchase securities on margin; (ix) sell securities short; (x) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act; or (xi) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidation. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. IVY US BLUE CHIP FUND Ivy US Blue Chip Fund's investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. Under normal conditions, the Fund will invest at least 65% of its total assets in the common stocks of companies determined by IMI to be "Blue Chip." Generally, the median market capitalization of companies targeted for investment by the Fund will be greater than $5 billion. For investment purposes, however, Blue Chip companies are those companies whose market capitalization is greater than $1 billion at the time of investment. Blue Chip companies are those which occupy (or in IMI's judgment have the potential to occupy) leading market positions that are expected to be maintained or enhanced over time. Such companies tend to have a lengthy history of profit growth and dividend payment, and a reputation for quality management structure, products and services. Securities of Blue Chip companies generally are considered to be highly liquid because, compared to those of lesser-capitalized companies, more shares of these securities are outstanding in the marketplace and their trading volume tends to be higher. When circumstances warrant, Ivy US Blue Chip Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if unrated, are considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. Ivy US Blue Chip Fund may borrow up to 10% of the value of its total assets, for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may also invest in equity real estate investment trusts ("REITs"). The Fund may write put options on securities and stock indices, with respect to not more than 10% of the value of its net assets, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its total assets. The Fund may purchase interest rate and other financial futures contracts and related options. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND Ivy US Blue Chip Fund's investment objective, as set forth in the Prospectus under "Investment Objectives and Policies," and the investment restrictions set forth below are fundamental policies of the Fund and may not be changed with respect to the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy US Blue Chip Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (ii) invest in oil, gas or other mineral leases or exploration or development programs; (iii) engage in the purchase and sale of puts, calls, straddles or spreads (except to the extent described in the Prospectus and in this SAI); (iv) invest in companies of the purpose of exercising control of management; (v) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (vi) purchase or retain securities of any company if officers and Trustees of the Trust and officers and directors of IMI, MIMI or Mackenzie Financial Corporation who individually own more than 1/2 of 1% of the securities of that company together own beneficially more than 5% of such securities; (vii) invest more than 15% of its net assets in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any such instrument that, due to the existence of a trading market or to other factors, is liquid; (viii) purchase securities of another investment company, except in connection with a merger, consolidation, reorganization or acquisition or assets, and except that the Fund may (i) invest in securities of other investment companies subject to the restrictions set forth in Section 12(d)(1) of the 1940 Act and (ii) acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on subparagraphs (f) and (g) of Section 12(d)(1) of the 1940 Act; (ix) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, the deposit or payment by the Fund of initial or variation margins in connection with futures contracts or related options transactions is not considered the purchase of a security on margin; (x) sell securities short; (xi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than shares of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act; or (xii) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, as a temporary measure for extraordinary or emergency purposes or where investment transactions might advantageously require it, or except in connection with reverse repurchase agreements, provided that the Fund maintains net asset coverage of at least 300% for all borrowings. Under the 1940 Act, the Fund is permitted, subject to the Fund's investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including REITs. Despite fundamental investment restriction (vi) above, the Fund may invest in interest rate and other financial futures contracts and related options. IVY US EMERGING GROWTH FUND Ivy US Emerging Growth Fund's principal investment objective is long-term capital growth primarily through investment in equity securities, with current income being a secondary consideration. Under normal conditions, the Fund invests at least 65% of its total assets in common stocks and securities convertible into common stocks. The Fund invests primarily in equity securities of small- and medium-sized companies, that are in the early stages of their life cycles and that IMI believes have the potential to become major enterprises. These may include securities issued pursuant to initial public offerings ("IPOs"). The Fund may engage in short-term trading. Ivy US Emerging Growth Fund may invest up to 25% of its net assets in foreign equity securities, primarily those traded in European, Pacific Basin and Latin American markets, some of which may be emerging markets involving special risks, as described below. Individual foreign securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. When circumstances warrant, the Fund may invest without limit in investment grade debt securities (e.g., U.S. Government securities or other corporate debt securities rated as least Baa by Moody's or BBB by S&P, or, if unrated, are considered by IMI to be of comparable quality), preferred stocks, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. The Fund may borrow up to 10% of the value of its total assets, but only for temporary purposes when it would be advantageous to do so from an investment standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund may enter into forward foreign currency contracts. Ivy US Emerging Growth Fund may write put options, with respect to not more than 10% of the value of its net assets, on securities and stock indices, and may write covered call options with respect to not more than 25% of the value of its net assets. The Fund may purchase options, provided the aggregate premium paid for all options held does not exceed 5% of its net assets. For hedging purposes only, the Fund may enter into stock index futures contracts as a means of regulating its exposure to equity markets. The Fund's equivalent exposure in stock index futures contracts will not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND Ivy US Emerging Growth Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS Ivy US Emerging Growth Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (ii) invest in oil, gas or other mineral leases or exploration or development programs; (iii) engage in the purchase and sale of puts, calls, straddles or spreads (except to the extent described in the Prospectus and in this SAI); (iv) invest in companies for the purpose of exercising control of management; (v) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (vi) purchase or retain securities of any company if officers and Trustees of the Trust and officers and directors of Ivy Management, Inc. (the Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial Corporation who individually own more than 1/2 of 1% of the securities of that company together own beneficially more than 5% of such securities; (vii) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that a fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (viii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the 1940 Act and rules thereunder or by any state in which its shares are registered; (ix) purchase securities on margin; (x) sell securities short; (xi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940; or (xii) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including REITs. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities shares represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which each Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stock changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock, although typically not as much as the price of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. SMALL COMPANIES Investing in smaller company stocks involves certain special considerations and risks that are not usually associated with investing in larger, more established companies. For example, the securities of small or new companies may be subject to more abrupt or erratic market movements because they tend to be thinly traded and are subject to a greater degree to changes in the issuer's earnings and prospects. Small companies also tend to have limited product lines, markets or financial resources. Transaction costs in smaller company stocks also may be higher than those of larger companies. INITIAL PUBLIC OFFERINGS Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. A Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequences. The number of securities issued in an IPO is limited, so it is likely that IPO securities will represent a smaller component of a Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance). ADJUSTABLE RATE PREFERRED STOCKS Adjustable rate preferred stocks have a variable dividend, generally determined on a quarterly basis according to a formula based upon a specified premium or discount to the yield on a particular U.S. Treasury security rather than a dividend which is set for the life of the issue. Although the dividend rates on these stocks are adjusted quarterly and their market value should therefore be less sensitive to interest rate fluctuations than are other fixed income securities and preferred stocks, the market values of adjustable rate preferred stocks have fluctuated and can be expected to continue to do so in the future. DEBT SECURITIES IN GENERAL. Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). The Funds may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or BBB by S&P, and comparable unrated securities (commonly referred to as "high yield" or "junk" bonds), including many emerging markets bonds, are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The lower the ratings of corporate debt securities, the more their risks render them like equity securities. Such securities carry a high degree of risk (including the possibility of default or bankruptcy of the issuers of such securities), and generally involve greater volatility of price and risk of principal and income (and may be less liquid) than securities in the higher rating categories. (See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics.) Lower rated and unrated securities are especially subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. During an economic downturn or period of rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to service their principal and interest payment obligations. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. Changes in interest rates may have a less direct or dominant impact on high yield bonds than on higher quality issues of similar maturities. However, the price of high yield bonds can change significantly or suddenly due to a host of factors including changes in interest rates, fundamental credit quality, market psychology, government regulations, U.S. economic growth and, at times, stock market activity. High yield bonds may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, a Fund may have to replace the security with a lower yielding security. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market or because of a decline in the value of such securities. A thin trading market may limit the ability of each Fund to accurately value high yield securities in the Fund's portfolio, could adversely affect the price at which that Fund could sell such securities, and cause large fluctuations in the daily net asset value of that Fund's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of low-rated debt securities, especially in a thinly traded market. When secondary markets for high yield securities become relatively less liquid, it may be more difficult to value the securities, requiring additional research and elements of judgment. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high yield securities market can change suddenly and unexpectedly, and even recently issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. For these reasons, it is the policy of IMI not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of each Fund's investment objectives by investment in such securities may be more dependent on IMI's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the best interest of a Fund to retain or dispose of such security. However, should any individual bond held by a Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. Prices for high yield securities may be affected by legislative and regulatory developments. For example, Federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, Congress has from time to time considered legislation that would restrict or eliminate the corporate tax deduction for interest payments in these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayments tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayment, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association and Student Loan Marketing Association. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in a Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to a Fund on a current basis, but is in effect compounded, the value of such securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. ILLIQUID SECURITIES Each Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of a Fund. It is each Fund's policy that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between a Fund's decision to sell a restricted or illiquid security and the point at which that Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, a Fund may be required to bear all or part of the registration expenses. A Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares ("GDSs") and related depository instruments, and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in each Fund's domestic investments. Although IMI intends to invest each Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which each Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, each Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of each Fund to make intended security purchases due to settlement problems could cause that Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. It may be more difficult for each Fund's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the United States and foreign countries may be less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. IMI seeks to mitigate the risks to each Fund associated with the foregoing considerations through investment variation and continuous professional management. EMERGING MARKETS Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund could have significant investments in securities traded in emerging markets. Investors should recognize that investing in such countries involves special considerations, in addition to those set forth above, that are not typically associated with investing in United States securities and that may affect each Fund's performance favorably or unfavorably. In recent years, many emerging market countries around the world have undergone political changes that have reduced government's role in economic and personal affairs and have stimulated investment and growth. Historically, there is a strong direct correlation between economic growth and stock market returns. While this is no guarantee of future performance, IMI believes that investment opportunities (particularly in the energy, environmental services, natural resources, basic materials, power, telecommunications and transportation industries) may result within the evolving economies of emerging market countries from which each Fund and its shareholders will benefit. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. Such risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies that may restrict each Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until relatively recently in certain Eastern European countries, of a capital market structure or market-oriented economy; (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries; and (viii) the possibility that currency devaluations could adversely affect the value of each Fund's investments. Further, many emerging markets have experienced and continue to experience high rates of inflation. Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, each Fund could lose a substantial portion of any investments it has made in the affected countries. Further, few (if any) accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial in relation to the actual market values and may be adverse to a Fund's net asset value. Certain Eastern European countries that do not have well-established trading markets are characterized by an absence of developed legal structures governing private and foreign investments and private property. In addition, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of each Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of a Fund's cash and securities, that Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs and may purchase forward foreign currency contracts. Because of these factors, the value of the assets of each Fund as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and each Fund may incur costs in connection with conversions between various currencies. Although each Fund's custodian values the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. Each Fund will do so from time to time, however, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Each Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. Because Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund normally will be invested in both U.S. and foreign securities markets, changes in these Funds' share price may have a low correlation with movements in U.S. markets. Each Fund's share price will reflect the movements of the different stock and bond markets in which it is invested (both U.S. and foreign), and of the currencies in which the investments are denominated. Thus, the strength or weakness of the U.S. dollar against foreign currencies may account for part of each Fund's investment performance. U.S. and foreign securities markets do not always move in step with each other, and the total returns from different markets may vary significantly. Foreign currencies in which each Fund's assets are denominated may be devalued against the U.S. dollar, resulting in a loss to the Fund. FOREIGN CURRENCY EXCHANGE TRANSACTIONS Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may enter into forward foreign currency contracts in order to protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date (usually less than a year), and typically is individually negotiated and privately traded by currency traders and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for commissions, they do realize a profit based on the difference between the price at which they are buying and selling various currencies. Although these contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. While each Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for each Fund than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Fund. An imperfect correlation of this type may prevent each Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may purchase currency forwards and combine such purchases with sufficient cash or short-term securities to create unleveraged substitutes for investments in foreign markets when deemed advantageous. Each Fund may also combine the foregoing with bond futures or interest rate futures contracts to create the economic equivalent of an unhedged foreign bond position. Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which each Fund has or in which each Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to a Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which a Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, each Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. Each Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, each Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, each Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. Each Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by a Fund. Each Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. Each Fund may invest in commercial paper that is rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on each Fund's net asset value of any increase or decrease in the value of each Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of each Fund's borrowings will be fixed, each Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. WARRANTS The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. However, prices of warrants do not necessarily move in a tandem with the prices of the underlying securities, and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by a Fund were not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. REAL ESTATE INVESTMENT TRUSTS (REITS) A REIT is a corporation, trust or association that invests in real estate mortgages or equities for the benefit of its investors. REITs are dependent upon management skill, may not be diversified and are subject to the risks of financing projects. Such entities are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs indirectly through Ivy Growth Fund, Ivy Growth with Income Fund, or Ivy US Blue Chip Fund, a shareholder will bear not only his or her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligation in an OTC transaction, a Fund would need to negotiate directly with the counterparty. Each Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that a Fund has written lapses unexercised, because the Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by any Fund, are taxable as ordinary income. See "Taxation." Each Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by each Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When a Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may write (sell) covered call options on the Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. Each Fund may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the Fund for the options). In view of the investment objectives of each Fund, each Fund generally would write call options only in circumstances where the investment adviser to the Fund does not anticipate significant appreciation of the underlying security in the near future or has otherwise determined to dispose of the security. A "covered" call option means generally that so long as a Fund is obligated as the writer of a call option, the Fund will (i) own the underlying securities subject to the option, or (ii) have the right to acquire the underlying securities through immediate conversion or exchange of convertible preferred stocks or convertible debt securities owned by the Fund. Although each Fund receives premium income from these activities, any appreciation realized on an underlying security will be limited by the terms of the call option. Each Fund may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, each Fund receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period, if the option is exercised. So long as a Fund remains obligated as a writer of a call option, it forgoes the opportunity to profit from increases in the market price of the underlying security above the exercise price of the option, except insofar as the premium represents such a profit (and retains the risk of loss should the value of the underlying security decline). PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may purchase a put option on an underlying security owned by the Fund as a defensive technique in order to protect against an anticipated decline in the value of the security. Each Fund, as the holder of the put option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that the Fund must pay. These costs will reduce any profit a Fund might have realized had it sold the underlying security instead of buying the put option. The premium paid for the put option would reduce any capital gain otherwise available for distribution when the security is eventually sold. The purchase of put options will not be used by any Fund for leverage purposes. Each Fund may also purchase a put option on an underlying security that it owns and at the same time write a call option on the same security with the same exercise price and expiration date. Depending on whether the underlying security appreciates or depreciates in value, the Fund would sell the underlying security for the exercise price either upon exercise of the call option written by it or by exercising the put option held by it. A Fund would enter into such transactions in order to profit from the difference between the premium received by the Fund for the writing of the call option and the premium paid by the Fund for the purchase of the put option, thereby increasing the Fund's current return. A Fund may write (sell) put options on individual securities only to effect a "closing sale transaction." PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Each Fund may purchase and sell (write) put and call options on securities indices. An index assigns relative values to the securities included in the index and the index fluctuates with changes in the market values of the securities so included. Call options on indices are similar to call options on individual securities, except that, rather than giving the purchaser the right to take delivery of an individual security at a specified price, they give the purchaser the right to receive cash. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars, times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The multiplier for an index option performs a function similar to the unit of trading for a stock option. It determines the total dollar value per contract of each point in the difference between the exercise price of an option and the current level of the underlying index. A multiplier of 100 means that a one-point difference will yield $100. Options on different indices have different multipliers. When a Fund writes a call or put option on a stock index, the option is "covered," in the case of a call, or "secured," in the case of a put, if the Fund maintains in a segregated account with the Custodian cash or liquid securities equal to the contract value. A call option is also covered if a Fund holds a call on the same index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. A put option is also "secured" if a Fund holds a put on the same index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written or (ii) less than the exercise price of the put written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of a U.S. option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities (or cash in the case of an index option) at the exercise price. If a put or call option purchased by a Fund is not sold when it has remaining value, and if the market price of the underlying security (or index), in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security (or index) is purchased to hedge against price movements in a related security (or securities), the price of the put or call option may move more or less than the price of the related security (or securities). In this regard, there are differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position. Finally, trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. Closing transactions can be made for OTC options only by negotiating directly with the counterparty or by a transaction in the secondary market, if any such market exists. Transfer of an OTC option is usually prohibited absent the consent of the original counterparty. There is no assurance that a Fund will be able to close out an OTC option position at a favorable price prior to its expiration. An OTC counterparty may fail to deliver or to pay, as the case may be. In the event of insolvency of the counterparty, a Fund might be unable to close out an OTC option position at any time prior to its expiration. Although a Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. When conducted outside the U.S., options transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in each Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and liquidity. Each Fund's options activities also may have an impact upon the level of its portfolio turnover and brokerage commissions. See "Portfolio Turnover." Each Fund's success in using options techniques depends, among other things, on IMI's ability to predict accurately the direction and volatility of price movements in the options and securities markets, and to select the proper type, timing of use and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS IN GENERAL. Each Fund may enter into futures contracts and options on futures contracts for hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a commodity at a specified price and time. When a purchase or sale of a futures contract is made by a Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or liquid securities ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day each Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, each Fund will mark-to-market its open futures position. Each Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery of offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. When purchasing a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund, or, if lower, may cover the difference with cash or short-term securities. When selling a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). When selling a call option on a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, equal the total market value of the futures contract underlying the call option. Alternatively, a Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund, or covering the difference if the price is higher. When selling a put option on a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that equal the purchase price of the futures contract less any margin on deposit. Alternatively, a Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund, or, if lower, the Fund may hold securities to cover the difference. RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in any Fund's portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an active secondary market will continue to exist. Currency futures contracts and options thereon may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such position also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. SECURITIES INDEX FUTURES CONTRACTS Each Fund may enter into securities index futures contracts as an efficient means of regulating that Fund's exposure to the equity markets. Each Fund will not engage in transactions in futures contracts for speculation, but only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. The value of a unit is the current value of the stock index. For example, the S&P 500 Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The index futures contract specifies that no delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if a Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If a Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). RISKS OF SECURITIES INDEX FUTURES. Each Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. Each Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, each Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although each Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when a Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, a Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund generally realizes a capital gain, or if it is more, a Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. Each Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. Each Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. When purchasing an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund. When selling an index futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in cash or liquid assets in a segregated account with the Fund's custodian). COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions and multiple currency transactions (including forward currency contracts) and some combination of futures, options and currency transactions ("component" transactions), instead of a single transaction, as part of a single or combined strategy when, in the opinion of IMI, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. PORTFOLIO TURNOVER Each Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining a Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. TRUSTEES AND OFFICERS Each Fund's Board of Trustees (the "Board") is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering each Fund's day-to-day operations. The Trustees and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: POSITION WITH BUSINESS AFFILIATIONS NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS John S. Anderegg, Jr. Trustee Chairman, Dynamics Research 60 Concord Street Corp. (instruments and controls); Wilmington, MA 01887 Director, Burr-Brown Corp. Age: 75 (operational amplifiers); Director, Metritage Incorporated (level measuring instruments); Trustee of Mackenzie Series Trust (1992-1998). James W. Broadfoot President President, Ivy Management Inc. 700 South Federal Hwy. and (1996-present); Senior Vice Suite 300 Trustee President, Ivy Management, Inc. Boca Raton, FL 33432 (1992-1996); Director and Senior Age: 56 Vice President, Mackenzie [*Deemed to be an Investment Management Inc. (1995- "interested person" present); Senior Vice President, of the Trust, as Mackenzie Investment Management defined under the Inc. (1990-1995). 1940 Act.] Paul H. Broyhill Trustee Chairman, BMC Fund, Inc. 800 Hickory Blvd. (1983-present); Chairman, Golfview Park-Box 500 Broyhill Family Foundation, Lenoir, NC 28645 Inc. (1983-Present); Chairman Age: 75 and President, Broyhill Investments, Inc. (1983-present); Chairman, Broyhill Timber Resources (1983-present); Management of a personal portfolio of fixed-income and equity investments (1983- present); Trustee of Mackenzie Series Trust (1988-1998); Director of The Mackenzie Funds Inc. (1988-1995). Keith J. Carlson Chairman Senior Vice President of 700 South Federal Hwy. and Mackenzie Investment Management, Suite 300 Trustee Inc. (1996-present); Senior Vice Boca Raton, FL 33432 President and Director of Age: 42 Mackenzie Investment Management, [*Deemed to be an Inc. (1994-1996); Senior Vice "interested person" President and Treasurer of of the Trust, as defined Mackenzie Investment Management, under the Inc. (1989-1994); Senior Vice 1940 Act.] President and Director of Ivy Management Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management Inc. (1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); Senior Vice President and Director, Ivy Mackenzie Services Corp. (1996- present); President and Director of Ivy Mackenzie Services Corp. (1993-1996); Trustee and President of Mackenzie Series Trust (1996-1998); Vice President of Mackenzie Series Trust (1994- 1998); Treasurer of Mackenzie Series Trust (1985-1994); President, Chief Executive Officer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Executive Vice President and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); Trustee of Mackenzie Series Trust (1996-1998). Stanley Channick Trustee President and Chief Executive 11 Bala Avenue Officer, The Whitestone Bala Cynwyd, PA 19004 Corporation (insurance agency); Age: 75 Chairman, Scott Management Company (administrative services for insurance companies); President, The Channick Group (consultants to insurance companies and national trade associations); Trustee of Mackenzie Series Trust (1994- 1998); Director of The Mackenzie Funds Inc. (1994-1995). Roy J. Glauber Trustee Mallinckrodt Professor of Lyman Laboratory Physics, Harvard University of Physics (1974-present); Trustee of Harvard University Mackenzie Series Trust (1994- Cambridge, MA 02138 1997). Age: 73 Dianne Lister Trustee President and Chief Executive 556 University Avenue Officer, The Hospital for Sick Toronto, Ontario L4J 2T4 Children Foundation (1993- present); Chief Operating Officer, The Hospital for Sick Children Foundation (1992-1993); Executive Vice President, The Hospital for Sick Children Foundation (1991-1992). Joseph G. Rosenthal Trustee Chartered Accountant 110 Jardin Drive (1958-present); Trustee of Unit #12 Mackenzie Series Trust Concord, Ontario Canada (1985-1998); Director of L4K 2T7 The Mackenzie Funds Inc. Age: 64 (1987-1995). Richard N. Silverman Trustee Director, Newton-Wellesley 18 Bonnybrook Road Hospital; Director, Beth Waban, MA 02168 Israel Hospital; Director, Age: 75 Boston Ballet; Director, Boston Children's Museum; Director, Brimmer and May School. J. Brendan Swan Trustee President, Airspray Inter- 4701 North Federal Hwy. national, Inc.; Joint Managing Suite 465 Director, Airspray International Pompano Beach, FL 33064 B.V. (an environmentally sensitive Age: 69 packaging company); Director of Polyglass LTD.; Director, The Mackenzie Funds Inc. (1992-1995); Trustee of Mackenzie Series Trust (1992-1998). Edward M. Tighe Trustee Chief Executive Officer, CITCO 5900 N. Andrews Avenue Technology Management, Inc. Suite 700 ("CITCO") (computer software Ft. Lauderdale, FL 33309 development and consulting) (1999-present); President and Director, Global Technology Management, Inc. (CITCO's predecessor) (1992-1998); Managing Director, Global Mutual Fund Services, Ltd. (financial services firm); President, Director and Chief Executive Officer, Global Mutual Fund Services, Inc. (1994-present). C. William Ferris Secretary/ Senior Vice President, 700 South Federal Hwy. Treasurer Chief Financial Officer Suite 300 and Secretary/Treasurer Boca Raton, FL 33432 of Mackenzie Investment Age: 54 Management Inc. (1995-present); Senior Vice President, Finance and Administration/Compliance Officer of Mackenzie Investment Management Inc. (1989-1994); Senior Vice President, Secretary/ Treasurer and Clerk of Ivy Management Inc. (1994- present); Vice President, Finance/Administration and Compliance Officer of Ivy Management Inc. (1992-1994); Senior Vice President, Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); President and Director of Ivy Mackenzie Services Corp. (1996-present); Secretary/Treasurer and Director of Ivy Mackenzie Services Corp. (1993-1996); Secretary/Treasurer of The Mackenzie Funds Inc. (1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994-1998). COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 1999) PENSION OR TOTAL RETIREMENT ESTIMATED COMPENSATION BENEFITS ANNUAL FROM TRUST AGGREGATE ACCRUED AS BENEFITS AND FUND NAME, COMPENSATION PART OF FUND UPON COMPLEX PAID POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES John S. Anderegg, Jr. (Trustee) James W. Broadfoot (Trustee and President) Paul H. Broyhill (Trustee) Keith J. Carlson (Trustee and Chairman) Stanley Channick (Trustee) Frank W. DeFriece, Jr. (Trustee) Dianne Lister (Trustee) Roy J. Glauber (Trustee) Joseph G. Rosenthal (Trustee) Richard N. Silverman (Trustee) J. Brendan Swan (Trustee) C. William Ferris (Secretary/ Treasurer) *The Fund complex consists of Ivy Fund and Mackenzie Solutions. To the knowledge of the Trust, as of [____________], no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions [to be completed by amendment]: As of _______________, the Officers and Trustees of the Trust as a group owned beneficially or of record less than 1% of the outstanding Class A, Class B, Class C, Class I and Advisor Class shares of each of the twenty-one Ivy Funds that are series of the Trust, except that [to be completed by amendment]. PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted to engage in personal securities transactions, subject to the requirements and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the "Code of Ethics"). The Code of Ethics is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the Funds. Among other things, the Code of Ethics, which IMI believes complies with Rule 17j-1 under the 1940 Act, prohibits certain types of transactions absent prior approval, applies to portfolio managers, traders, research analysts and others involved in the investment advisory process, and imposes time periods during which personal transactions in certain securities may not be made , and requires the submission of duplicate broker confirmations and quarterly and annual reporting of securities transactions. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate officers or compliance personnel. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI provides business management and investment advisory services to the Fund pursuant to a Business Management and Investment Advisory Agreement (the "Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation organized under the laws of Ontario whose shares are listed for trading on the TSE. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund. IMI also currently acts as manager and investment adviser to the other series of Iv y Fund and the five series of Mackenzie Solutions. IMI also provides business management services to Ivy Global Natural Resources Fund. The Agreement obligates IMI to make investments for the account of each Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. IMI also determines the securities to be purchased or sold by each Fund and places orders with brokers or dealers who deal in such securities. Under the Agreement, IMI also provides certain business management services. IMI is obligated to (1) coordinate with each Fund's Custodian and monitor the services it provides to each Fund; (2) coordinate with and monitor any other third parties furnishing services to each Fund; (3) provide each Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund's needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by each Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with each Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. Ivy Growth Fund Pays IMI a monthly fee for providing business management and investment advisory services that is equal, on an annual basis, to 0.85% of the first $350 million of the Fund's average net assets reduced to 0.75% on its average net assets in excess of $350 million. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth Fund paid IMI fees of $2,794,304, $2,722,314 and [ ], respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and [ ], respectively. Ivy Growth with Income Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 0.75% of the Fund's average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth with Income Fund paid IMI fees of $624,013, $702,361 and [ ], respectively. Ivy US Blue Chip Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of [0.75%] of the Fund's average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy US Blue Chip Fund paid IMI fees of $1,687. During the fiscal year ended December 31, 1998 and 1999, IMI reimbursed Fund expenses in the amount of $11,052 and [ ], respectively. Ivy US Emerging Growth Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 0.85% of the Fund's average net assets. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy US Emerging Growth Fund paid IMI fees of $973,756, $985,816 and [ ], respectively. Under the Agreement, the Trust pays the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. IMI currently limits the total operating expenses (excluding Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) of Ivy Growth Fund, Ivy Growth with Income Fund and Ivy US Emerging Growth Fund to an annual rate of 1.95% of each Fund's average net assets and of Ivy US Blue Chip Fund to an annual rate of 1.15% of the Fund's average net assets, which may lower each Fund's expenses and increase its yield. The Agreement will continue in effect with respect to each Fund from year to year, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the Independent Trustees and (ii) either (a) by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund or (b) by the vote of a majority of the entire Board. If the question of continuance of the Agreement (or adoption of any new agreement) with respect to any Fund is presented to the shareholders, continuance (or adoption) shall be effected only if approved by the affirmative vote of a majority of the outstanding voting securities of that Fund. See "Capitalization and Voting Rights." The Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of the Fund, on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. The Agreement shall terminate automatically in the event of its assignment. DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of Ivy Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. The Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at the Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to any Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to the Fund or by the Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund represent an equal pro rata interest in the Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of each Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) each Fund's Class B shares will convert automatically into Class A shares of that Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the assets of each Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of each Fund's foreign securities. With respect to each Fund, the Custodian may receive, as partial payment for its services to the Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to a Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for each Fund. As compensation for those services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of each Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. During the fiscal year ended December 31, 1999, Ivy Growth Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Growth with Income Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy US Blue Chip Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy US Emerging Growth Fund paid MIMI [ ] under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor Class account. In addition, each Fund pays a monthly fee at an annual rate of $4.58 per account that is closed plus certain out-of-pocket expenses. Ivy US Blue Chip Fund pays a monthly fee at an annual rate of $10.25 per open Class I account. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Growth Fund totaled [ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy Growth with Income Fund totaled [ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy US Blue Chip Fund totaled [ ]. Such fees and expenses for the fiscal year ended December 31, 1999 for Ivy US Emerging Growth Fund totaled [ ]. Certain broker-dealers that maintain shareholder accounts with each Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by IMSC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. IMSC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to each Fund. As compensation for these services, each Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net asset value of its Class A, Class B, Class C, and Advisor Class shares. Ivy US Blue Chip Fund pays MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I. Such fees for the fiscal year ended December 31, 1999 for Ivy Growth Fund totaled [ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Growth with Income Fund totaled [ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy US Blue Chip Fund totaled [ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy US Emerging Growth Fund totaled [ ]. AUDITORS [ ], independent public accountants, has been selected as auditors for the Trust. The audit services performed by [ ] include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of each Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by any Fund for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI attempts to deal directly with the principal market makers, except in those circumstances where IMI believes that a better price and execution are available elsewhere. IMI selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI in servicing all of its accounts. In addition, not all of these services may be used by IMI in connection with the services it provides to the Funds or the Trust. IMI may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI will not, however, execute brokerage transactions other than at the best price and execution. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth Fund paid brokerage commissions of $683,881, 907,345 and [ ], respectively. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Growth with Income Fund paid brokerage commissions of $155,283, $378,887 and [ ], respectively. During the fiscal year ended December 31, 1998 and 1999, Ivy US Blue Chip Fund paid brokerage commissions of $1,806 and [ ]. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy US Emerging Growth Fund paid brokerage commissions of $583,738, $658,613 and [ ], respectively. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI deems to be a desirable investment for that Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for Fund shares with securities and may discontinue accepting securities as payment for Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and each Fund's shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the declaration of Trust, the Trustees may terminate any Fund upon written notice to shareholders. This might occur, for example, if a Fund did not reach or failed to maintain an economically viable size. The Trustees have authorized nineteen series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for the Funds, Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, and Ivy South America Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund and Ivy [ ] Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of that Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of that Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to that Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Amended and Restated Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Amended and Restated Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of any Fund held personally liable for the obligations of that Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, and Ivy South America Fund, and Ivy [ ] Fund (the other seventeen series of the Trust). (Effective April 18, 1997, Ivy International Fund suspended the offer of its shares to new investors). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $250 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to IMSC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds (except Ivy International Fund unless they have an existing Ivy International Fund account). Before effecting an exchange, shareholders of a Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. Advisor Class shareholders may exchange their outstanding Advisor Class shares for Advisor Class shares of another Ivy fund on the basis of the relative net asset value per share. The minimum value of Advisor Class shares which may be exchanged into an Ivy fund in which shares are not already held is $10,000. No exchange out of any Fund (other than by a complete exchange of all Fund shares) may be made if it would reduce the shareholder's interest in the Advisor Class shares of that Fund to less than $10,000. Each exchange will be made on the basis of the relative net asset value per share of the Ivy funds involved in the exchange next computed following receipt by IMSC of telephone instructions by IMSC or a properly executed request. Exchanges, whether written or telephonic, must be received by IMSC by the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) to receive the price computed on the day of receipt. Exchange requests received after that time will receive the price next determined following receipt of the request. The exchange privilege may be modified or terminated at any time, upon at least 60 days' notice to the extent required by applicable law. See "Redemptions." An exchange of shares between any of the Ivy funds will result in a taxable gain or loss. Generally, this will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. However, in certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on an exchange. See "Taxation." With limited exceptions, gain realized by a tax-deferred retirement plan will not be taxable to the plan and will not be taxed to the participant until distribution. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from IMSC, who may impose a charge for establishing the account. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, an eligible individual may contribute up to the lesser of $2,000 or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are both employed, and both are under age 70-1/2, each may set up his or her own IRA within these limits. If both earn at least $2,000 per year, the maximum potential contribution is $4,000 per year for both. For years after 1996, the result is similar even if one spouse has no earned income; if the joint earned income of the spouses is at least $4,000, a contribution of up to $2,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (or his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includable in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses and amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAS: Shares of each Fund also may be used as a funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $2,000 per year to a Roth IRA. The maximum contribution amount diminishes and gradually falls to zero for single filers with adjusted gross incomes ranging from $95,000 to $110,000. Married couples earning less than $150,000 combined, and filing jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum contribution amount for married couples filing jointly phases out from $150,000 to $160,000. An individual whose adjusted gross income exceeds the maximum phase-out amount cannot contribute to a Roth IRA. An eligible individual can contribute money to a traditional IRA and a Roth IRA as long as the total contribution to all IRAs does not exceed $2,000. Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA (other than the amount of nondeductible contributions) are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: reaching age 59 1/2, death, disability, deductible medical expenses, the purchase of health insurance for certain unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $30,000 or 25% of compensation or earned income to a money purchase pension plan or to a combination profit sharing and money purchase pension plan arrangement each year on behalf of each participant. To be deductible, total contributions to a profit sharing plan generally may not exceed 15% of the total compensation or earned income of all participants in the plan, and total contributions to a combination money purchase-profit sharing arrangement generally may not exceed 25% of the total compensation or earned income of all participants. The amount of compensation or earned income of any one participant that may be included in computing the deduction is limited (generally to $150,000 for benefits accruing in plan years beginning after 1993, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Custodial Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's separation from service. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay tax-deductible medical expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Trust in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from IMSC. Distributions from the 403(b)(7) Account may be made only following death, disability, separation from service, attainment of age 59-1/2, or incurring a financial hardship. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical expenses; (4) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (5) rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account. SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP accounts generally are subject to all rules applicable to IRA accounts, except the deduction limits, and are subject to certain employee participation requirements. No new salary reduction SEPs ("SARSEPs") may be established after 1996, but existing SARSEPs may continue to be maintained, and non-salary reduction SEPs may continue to be established as well as maintained after 1996. SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k) for years after 1996. An employee can make pre-tax salary reduction contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if the employer maintains or maintained any other qualified retirement plan with respect to which any contributions or benefits have been credited. SYSTEMATIC WITHDRAWAL PLAN An Advisor Class shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or by delivery to IMSC of a written election to have his or her shares withdrawn periodically (minimum distribution amount - $50), accompanied by a surrender to IMSC of all share certificates then outstanding in such shareholder's name, properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must continually maintain an account balance of at least $10,000. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisers. Additional investments made by investors participating in a Withdrawal Plan must equal at least $250 each while the Withdrawal Plan is in effect. An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to IMSC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of each Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Trust does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of a Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Trust reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Trust and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that for each twelve-month period (or portion thereof) that the account is maintained. The Trust may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Trust reserves the right to change these fees from time to time without advance notice. REDEMPTIONS Shares of each Fund are redeemed at their net asset value next determined after a proper redemption request has been received by IMSC. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by a Fund is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of a Fund. The Trust may redeem those Advisor Class accounts of shareholders who have maintained an investment of less than $10,000 in any Fund for a period of more than 12 months. All Advisor Class accounts below that minimum will be redeemed simultaneously when MIMI deems it advisable. The $10,000 balance will be determined by actual dollar amounts invested by the shareholder, unaffected by market fluctuations. The Trust will notify any such shareholder by certified mail of its intention to redeem such account, and the shareholder shall have 60 days from the date of such letter to invest such additional sums as shall raise the value of such account above that minimum. Should the shareholder fail to forward such sum within 60 days of the date of the Trust's letter of notification, the Trust will redeem the shares held in such account and transmit the redemption in value thereof to the shareholder. However, those shareholders who are investing pursuant to the Automatic Investment Method will not be redeemed automatically unless they have ceased making payments pursuant to the plan for a period of at least six consecutive months, and these shareholders will be given six-months' notice by the Trust before such redemption. Shareholders in a qualified retirement, pension or profit sharing plan who wish to avoid tax consequences must "rollover" any sum so redeemed into another qualified plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. Delivery of the proceeds of a wire redemption request of $250,000 or more may be delayed by any Fund for up to seven days if deemed appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. Each Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, a Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. NET ASSET VALUE The net asset value per share of each Fund is computed by dividing the value of that Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining a Fund's aggregate net assets, receivables are valued at their realizable amounts. Each Fund's liabilities, if not identifiable as belonging to a particular class of that Fund, are allocated among the Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in the Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted sale price on the exchange on which the security is principally traded. If no sale is reported at that time, the average between the last bid and asked price (the "Calculated Mean") is used. Unless otherwise noted herein, the value of a foreign security is determined in its national currency as of the normal close of trading on the foreign exchange on which it is traded or as of the close of regular trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, eastern time, on the day the value of the foreign security is determined. All other securities for which OTC market quotations are readily available are valued at the Calculated Mean. A debt security normally is valued on the basis of quotes obtained from at least two dealers (or one dealer who has made a market in the security) or pricing services that take into account appropriate valuation factors. Interest is accrued daily. Money market instruments are valued at amortized cost, which the Board believes approximates market value. An exchange-traded option is valued at the last sale price on the exchange on which it is principally traded, if available, and otherwise is valued at the last sale price on the other exchange(s). If there were no sales on any exchange, the option shall be valued at the Calculated Mean, if possible, and otherwise at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC option is valued at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of a Fund's portfolio securities occur between the time when a foreign exchange closes and the time when that Fund's net asset value is calculated (see following paragraph), such securities may be valued at fair value as determined by IMI in accordance with procedures approved by the Board. Portfolio securities are valued (and net asset value per share is determined) as of the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) on each day the Exchange is open for trading. The Exchange and the Trust's offices are expected to be closed, and net asset value will not be calculated, on the following national business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days when either or both of a Fund's Custodian or the Exchange close early as a result of a partial holiday or otherwise, the Trust reserves the right to advance the time on that day by which purchase and redemption requests must be received. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on each Fund's net asset value next determined after your instructions are received in proper form by IMSC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since each Fund normally invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, each Fund's net asset value may change on days when shareholders will not be able to purchase or redeem that Fund's shares. The sale of each Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in a Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to each Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax adviser about the tax consequences to them of investing in any Fund. The Funds are not managed for tax-efficiency. Each Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, each Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies). As a regulated investment company, each Fund generally will not be subject to U.S. Federal income tax on its income and gains that it distributes to shareholders, if at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and the excess of any short-term capital gains over long-term capital losses) for the taxable year is distributed. Each Fund intends to distribute all such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each Fund must distribute during each calendar year, (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirements. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December of the year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year the distributions are declared, rather than the calendar year in which the distributions are received. OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS The taxation of equity options and OTC options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by each Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to the Fund. If a Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by a Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by a Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Some of the options, futures and foreign currency forward contracts in which each Fund may invest may be "section 1256 contracts." Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; however, as described below, foreign currency gains or losses arising from certain section 1256 contracts are ordinary in character. Also, section 1256 contracts held by each Fund at the end of each taxable year (and on certain other dates prescribed in the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. The transactions in options, futures and forward contracts undertaken by each Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains or losses realized by each Fund. In addition, losses realized by each Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to each Fund are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by any Fund, which is taxed as ordinary income when distributed to shareholders. Each Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a fund that did not engage in such transactions. Notwithstanding any of the foregoing, each Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of each Fund's taxable year, if certain conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time each Fund accrues receivables or liabilities denominated in a foreign currency and the time that Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of each Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES Each Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If a Fund receives a so-called "excess distribution" with respect to PFIC stock, that Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which a Fund held the PFIC shares. Each Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. Each Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Each Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, each Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. Each Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by each Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, each Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Each Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. Each Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by that Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by each Fund. DISTRIBUTIONS Distributions of investment company taxable income are taxable to a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends paid by each Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received from U.S. corporations by that Fund, may qualify for the dividends received deduction. However, the revised alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by each Fund as capital gain dividends, are taxable to shareholders as long-term capital gains whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares; such distributions are not eligible for the dividends received deduction. Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the net asset value of a share of that Fund on the distribution date. A distribution of an amount in excess of a Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Shareholders will be notified annually as to the U.S. Federal tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the net asset value of the shares received. If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Shareholders should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. DISPOSITION OF SHARES Upon a redemption, sale or exchange of his or her shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and, if so, will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss realized on a redemption sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having been received by the shareholder with respect to such shares. In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of a Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the same Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by each Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of any Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible and may elect to "pass-through" to the Fund's shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of a Fund's taxable year whether the foreign taxes paid by the Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if a Fund makes the election described in the preceding paragraph, the source of the Fund's income flows through to its shareholders. With respect to each Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from each Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of a Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if a Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers. BACKUP WITHHOLDING Each Fund will be required to report to the Internal Revenue Service ("IRS") all taxable distributions as well as gross proceeds from the redemption of the Fund's shares, except in the case of certain exempt shareholders. All such distributions and proceeds will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1) the shareholder fails to furnish the Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amounts required to be withheld. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. This discussion does not purport to deal with all of the tax consequences applicable to the Funds or shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in any Fund. PERFORMANCE INFORMATION Performance information for the classes of shares of each Fund may be compared, in reports and promotional literature, to: (i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors may compare each Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, a widely used independent research firm that ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in a Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. Performance rankings are based on historical information and are not intended to indicate future performance. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of each Fund will be expressed in terms of the average annual compounded rate of return that would cause a hypothetical investment in that class of the Fund made on the first day of a designated period to equal the ending redeemable value ("ERV") of such hypothetical investment on the last day of the designated period, according to the following formula: P(1 + T){superscript n} = ERV Where: P = a hypothetical initial payment of $1,000 to purchase shares of a specific class T = the average annual total return of shares of that class n = the number of years ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. For purposes of the above computation for each Fund, it is assumed that all dividends and capital gains distributions made by the Fund are reinvested at net asset value in additional Advisor Class shares during the designated period. Standardized Return quotations for each Fund do not take into account any required payments for federal or state income taxes. Standardized Return quotations are determined to the nearest 1/100 of 1%. Each Fund may, from time to time, include in advertisements, promotional literature or reports to shareholders or prospective investors total return data that are not calculated according to the formula set forth above ("Non-Standardized Return"). In determining the average annual total return for a specific class of shares of each Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of each Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of the Fund. The Standardized Return for the Advisor Class shares of Ivy Growth Fund for the period from the date Advisor Class shares were first offered (January 1, 1998) through and the one-year period ended December 31, 1999 was [ ], respectively The Standardized Return for the Advisor Class shares of Ivy Growth with Income Fund for the period from the date Advisor Class shares were first offered (January 1, 1998) through and the one-year period ended December 31, 1999 was [ ], respectively The Standardized Return for the Advisor Class shares of Ivy US Blue Chip Fund for the period from the date Advisor Class shares were first offered (November 2, 1998) through and the one-year period ended December 31, 1999 was [ ]. [These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return would have been [ ].] The Standardized Return for the Advisor Class shares of Ivy US Emerging Growth Fund for the period from the date Advisor Class shares were first offered (January 1, 1998) through and the one-year period ended December 31, 1999 was [ ], respectively. CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of each Fund for a specified period. Cumulative total return quotations reflect changes in the price of each Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in the same Fund's shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of each Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. The Cumulative Total Return for the Advisor Class shares of Ivy Growth Fund for the period from the date Advisor Class shares were first offered (January 1, 1998) through and the one-year period ended December 31, 1999 was [ ], respectively The Cumulative Total Return for the Advisor Class shares of Ivy Growth with Income Fund for the period from the date Advisor Class shares were first offered (January 1, 1998) through and the one-year period ended December 31, 1999 was [ ], respectivley The Cumulative Total Return for the Advisor Class shares of Ivy US Blue Chip Fund for the period from the date Advisor Class shares were first offered (November 2, 1998) through December 31, 1999 was [ ], respectively The Cumulative Total Return for the Advisor Class shares of Ivy US Emerging Growth Fund for the period from the date Advisor Class shares were first offered (January 1, 1998) through and the one-year period ended December 31, 1999 was [ ], respectively OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of the Fund's portfolio and operating expenses of the Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding each Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of each Fund's shares and the risks associated with each Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. Each Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS Each Fund's Portfolio of Investments as of December 31, 1999, Statement of Assets and Liabilities as of December 31, 1999, Statement of Operations for the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for the fiscal year ended December 31, 1999, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in each Fund's December 31, 1999 Annual Report to shareholders, are incorporated by reference into this SAI. APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New York, 1997).] MOODY'S: (a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality, carrying the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa are judged by Moody's to be of high quality by all standards. Aa bonds are rated lower than Aaa bonds because margins of protection may not be as large as those of Aaa bonds, or fluctuations of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than those applicable to Aaa securities. Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa by Moody's are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. (b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Issuers within this Prime category may be given ratings 1, 2 or 3, depending on the relative strengths of these factors. The designation of Prime-1 indicates the highest quality repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have a strong ability for repayment while issuers voted Prime-3 are deemed to have an acceptable ability for repayment. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings described below may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA is judged by S&P to have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A by S&P has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to pay interest and repay principal. Although such bonds normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than debt in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. The commercial paper rating A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. For commercial paper with an A-2 rating, the capacity for timely payment on issues is satisfactory, but not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment, but are more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. The C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. IVY BOND FUND IVY INTERNATIONAL STRATEGIC BOND FUND IVY MONEY MARKET FUND series of IVY FUND Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION May 1, 2000 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of twenty-one fully managed portfolios, each of which (except for Ivy South America Fund and Ivy International Strategic Bond Fund) is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B and C shares of Ivy Money Market Fund and the Class A, B, C and I shares of Ivy Bond Fund and Ivy International Strategic Bond Fund (each a "Fund"). The other eighteen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds dated May 1, 2000 (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. Ivy Bond Fund and Ivy International Strategic Bond Fund also offer Advisor Class shares, which are described in a separate prospectus and SAI that may also be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS GENERAL INFORMATION..........................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1 IVY BOND FUND.......................................................1 INVESTMENT RESTRICTIONS FOR IVY BOND FUND...........................2 IVY INTERNATIONAL STRATEGIC BOND FUND...............................5 INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND...7 IVY MONEY MARKET FUND...............................................9 INVESTMENT RESTRICTIONS FOR IVY MONEY MARKET FUND..................11 COMMON STOCKS...................................................... CONVERTIBLE SECURITIES.............................................13 DEBT SECURITIES....................................................14 IN GENERAL................................................14 INVESTMENT-GRADE DEBT SECURITIES..........................14 LOW-RATED DEBT SECURITIES.................................14 U.S. GOVERNMENT SECURITIES................................16 MUNICIPAL SECURITIES......................................16 ZERO COUPON BONDS.........................................17 FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES...17 ILLIQUID SECURITIES................................................17 FOREIGN SECURITIES.................................................18 DEPOSITORY RECEIPTS................................................19 EMERGING MARKETS...................................................20 FOREIGN SOVEREIGN DEBT OBLIGATIONS.................................21 BRADY BONDS........................................................21 LOAN PARTICIPATIONS AND ASSIGNMENTS................................22 FOREIGN CURRENCIES.................................................23 FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................23 REPURCHASE AGREEMENTS..............................................24 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................25 COMMERCIAL PAPER...................................................25 BORROWING..........................................................25 SHORT SALES........................................................26 OPTIONS TRANSACTIONS...............................................26 IN GENERAL................................................26 WRITING OPTIONS ON INDIVIDUAL SECURITIES..................27 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............28 PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES......28 RISKS OF OPTIONS TRANSACTIONS.............................29 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................30 IN GENERAL................................................30 INTEREST RATE FUTURES CONTRACTS...........................32 OPTIONS ON INTEREST RATE FUTURES CONTRACTS................32 SWAPS, CAPS, FLOORS AND COLLARS...........................33 FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS....34 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........35 SECURITIES INDEX FUTURES CONTRACTS.................................36 RISKS OF SECURITIES INDEX FUTURES.........................36 COMBINED TRANSACTIONS.....................................37 PORTFOLIO TURNOVER..........................................................38 TRUSTEES AND OFFICERS.......................................................38 PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..................43 INVESTMENT ADVISORY AND OTHER SERVICES......................................44 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............44 DISTRIBUTION SERVICES..............................................46 RULE 18F-3 PLAN...........................................47 RULE 12B-1 DISTRIBUTION PLANS.............................47 CUSTODIAN..........................................................51 FUND ACCOUNTING SERVICES...........................................51 TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................52 ADMINISTRATOR......................................................52 AUDITORS...........................................................53 BROKERAGE ALLOCATION........................................................53 CAPITALIZATION AND VOTING RIGHTS............................................54 SPECIAL RIGHTS AND PRIVILEGES...............................................55 AUTOMATIC INVESTMENT METHOD........................................56 EXCHANGE OF SHARES.................................................56 INITIAL SALES CHARGE SHARES...............................56 CONTINGENT DEFERRED SALES CHARGE SHARES............................57 CLASS A...................................................57 CLASS B...................................................57 CLASS C...................................................58 CLASS I...................................................58 ALL CLASSES...............................................58 LETTER OF INTENT...................................................59 RETIREMENT PLANS...................................................59 INDIVIDUAL RETIREMENT ACCOUNTS............................60 ROTH IRAS.................................................61 QUALIFIED PLANS...........................................62 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")..........63 SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..................63 SIMPLE PLANS..............................................63 REINVESTMENT PRIVILEGE.............................................63 RIGHTS OF ACCUMULATION.............................................64 SYSTEMATIC WITHDRAWAL PLAN.........................................64 GROUP SYSTEMATIC INVESTMENT PROGRAM................................65 REDEMPTIONS.................................................................66 CONVERSION OF CLASS B SHARES................................................67 NET ASSET VALUE.............................................................67 TAXATION 69 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............70 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............71 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................71 DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................72 DISTRIBUTIONS......................................................73 DISPOSITION OF SHARES..............................................73 FOREIGN WITHHOLDING TAXES..........................................74 BACKUP WITHHOLDING.................................................75 PERFORMANCE INFORMATION.....................................................75 YIELD..............................................................76 STANDARDIZED YIELD QUOTATIONS.............................76 AVERAGE ANNUAL TOTAL RETURN...............................77 CUMULATIVE TOTAL RETURN...................................82 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.....84 FINANCIAL STATEMENTS........................................................85 APPENDIX A..................................................................86 APPENDIX B.................................................................... GENERAL INFORMATION Ivy Bond Fund and Ivy Money Market Fund are organized as separate, diversified portfolios of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. Ivy International Strategic Bond Fund is organized as a separate, non-diversified portfolio of the Trust. Ivy Bond Fund commenced operations (Class A shares) on September 6, 1985. The inception date for Class B and Class I shares of Ivy Bond Fund was April 1, 1994. The inception date for Class C shares of Ivy Bond Fund was April 30, 1996. Ivy International Strategic Bond Fund commenced operations on May 3, 1999. The inception date for Ivy Money Market Fund was April 3, 1987. Descriptions in this SAI of a particular investment practice or technique in which a Fund may engage or a financial instrument which a Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing the Funds' portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in the Fund's overall investment strategy, from time to time have a material impact on a Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, is set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund's asset level or other circumstances beyond a Fund's control, will not be considered a violation. IVY BOND FUND The Fund seeks a high level of current income by investing primarily in (i) investment grade corporate bonds (those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's Ratings Services ("S&P"), or, if unrated, considered by IMI to be of comparable quality) and (ii) U.S. Government securities (including mortgage-backed securities issued by U.S. Government agencies or instrumentalities) that mature in more than 13 months. As a fundamental policy, the Fund normally invests at least 65% of its total assets in these fixed income securities. For temporary defensive purposes, the Fund may invest without limit in U.S. Government securities maturing in 13 months or less, certificates of deposit, bankers' acceptances, commercial paper and repurchase agreements. The Fund may also invest up to 35% of its total assets in such money market securities in order to meet redemptions or to maximize income to the Fund while it is arranging longer-term investments. The Fund may invest up to 35% of its net assets in corporate debt securities, including zero coupon bonds (subject to the restrictions set forth below), rated Ba or below by Moody's or BB or below by S&P, or, if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. See Appendix A for a description of Moody's and S&P's corporate bond ratings. The Fund may invest up to 5% of its net assets in dividend-paying common and preferred stocks (including adjustable rate preferred stocks and securities convertible into common stocks), municipal bonds, zero coupon bonds, and securities sold on a "when-issued" or firm commitment basis. As a temporary measure for extraordinary or emergency purposes, the Fund may borrow from banks up to 10% of the value of its total assets. The Fund may invest up to 20% of its net assets in debt securities of foreign issuers, including non-U.S. dollar-denominated debt securities, American Depository Receipts ("ADRs"), Global Depository ("GDRs"), American Depository Shares ("ADSs") and Global Depository Shares ("GDSs"), Eurodollar securities and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. The Fund may also enter into forward foreign currency contracts, but not for speculative purposes. The Fund may not invest more than 15% of the value of its net assets in illiquid securities. The Fund may purchase put and call options, provided the premium paid for such options does not exceed 10% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 50% of the value of its net assets, and may write covered call options so long as not more than 20% of the Fund's net assets in subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in interest rate futures contracts, currency futures contracts and options on interest rate futures and currency futures contracts. INVESTMENT RESTRICTIONS FOR IVY BOND FUND The Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS The Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (ii) purchase or sell real estate limited partnership interests; (iii) purchase or retain securities of any company if officers and Trustees of the Trust and officers and directors of Ivy Management, Inc. (the Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial Corporation who individually own more than 1/2 of 1% of the securities of that company together own beneficially more than 5% of such securities; (iv) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (v) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) make investments in securities for the purpose of exercising control over or management of the issuer; (vii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions. The deposit or payment by the Fund of initial or variation margin in connection with futures contracts or relate options transactions is not considered the purchase of a security on margin; (viii) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for extraordinary or emergency purposes; (ix) mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund (except as may be necessary in connection with permitted borrowings and then not in excess of 20% of the Fund's total assets); provided, however, this does not prohibit escrow, collateral or margin arrangements in connection with its use of options, short sales, futures contracts and options on future contracts; (x) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund -- or of the Fund and of other accounts under the investment management of the persons rendering investment advice to the Fund -- for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; or (xi) make short sales of securities or maintain a short position. IVY INTERNATIONAL STRATEGIC BOND FUND The Fund is a non-diversified company whose investment objectives are to seek total return by investing primarily in the debt securities of foreign issuers and, consistent with that objective, to maximize current income. The Fund will seek to achieve its investment objectives primarily through investment in debt securities issued by foreign governments, government-related entities and corporations. IMI will endeavor to achieve the Fund's investment objectives through active management of country, sector and currency exposure. The Fund seeks to achieve its objectives by investing primarily in a managed portfolio of high quality bonds denominated in foreign currencies. At least 65% of the Fund's total assets will normally be invested in bonds of foreign issuers. In selecting bonds for the Fund's portfolio, IMI will consider various factors, including yields, credit quality and the fundamental outlook for currency and interest rate trends in different parts of the world. IMI may also take into account the ability to hedge currency and local bond price risk. To be considered a high quality bond in which the Fund primarily invests, a bond must be rated at least BBB or better by S&P or Baa by Moody's or, if the bond is unrated, it must be considered by IMI to be of comparable quality in local currency terms. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's and/or BB or below by S&P or, if unrated, considered by IMI to be of comparable quality. The Fund will not invest in debt securities that, at the time of investment, are rated less than C by either Moody's or S&P. The Fund's investments may include: debt securities issued or guaranteed by a foreign national government, its agencies, instrumentalities or political subdivisions; debt securities issued or guaranteed by supranational organizations (e.g., European Investment Bank, Inter-American Development Bank or the World Bank); corporate debt securities; bank or bank holding company debt securities; and other debt securities, including those convertible into common stock. The Fund may also invest in zero coupon securities which do not provide for the periodic payment of interest and are sold at significant discount from face value. The Fund may also purchase securities which are not publicly offered and may be subject to regulations applicable to restricted securities. The Fund may invest in fixed- and floating-rate issues such as loan participations and loan assignments. In addition, the Fund may purchase Brady Bonds and other sovereign debt of countries that have restructured or are in the process of restructuring their sovereign debt. The Fund intends to diversify among several countries and market sectors, and to have represented, in substantial proportions, debt exposure in not less than three different countries other than the United States. Under normal circumstances, the Fund will invest no more than 35% of the value of its total assets in the debt securities of U.S. issuers. The Fund may engage in the use of options, futures, forward foreign currency contracts and other derivatives transactions, as described below, for hedging purposes, to seek to enhance potential gain, or as substitutes for direct debt holdings. The Fund may also engage in short sales of securities as a hedge for related securities whose liquidity may be insufficient to render it cost effective to sell and repurchase such securities (e.g., hedging a less liquid security of a corporate emerging markets issuer by selling short the larger, more liquid issue of a sovereign entity). The Fund may invest without limit in U.S. debt securities, including short-term money market securities, for temporary defensive or emergency purposes. It is not possible to predict the extent to which the Fund might employ such optional strategies. To protect against adverse movements of interest rates and for purposes of liquidity, the Fund may also purchase short-term obligations denominated in U.S. and foreign currencies such as, but not limited to, bank deposits, bankers' acceptances, certificates of deposit, commercial paper, short-term government, government agency, supranational agency and corporate obligations, and repurchase agreements. The Fund can use various techniques to increase or decrease its exposure to changing security prices, interest rates, currency exchange rates, commodity prices, or other factors that affect security values. These techniques may involve derivative transactions such as buying and selling options and futures contracts, entering into currency exchange, interest rate and other financial futures contracts and related options, and purchasing indexed securities. IMI can, in its discretion, use these practices to attempt to adjust the risk and return characteristics of the Fund's portfolio of investments. If IMI judges market conditions incorrectly or employs a strategy that does not correlate well with the Fund's investments, these techniques could result in a loss, regardless of whether the intent was to reduce risk or increase return. These techniques may increase the volatility of the Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques could result in a loss if the counterparty to the transaction does not perform as promised. The Fund may enter into repurchase agreements with selected banks and broker/dealers. Under a repurchase agreement, the Fund acquires securities, subject to the seller's agreement to repurchase at a specified time and price. The Fund may purchase securities on a when-issued or forward delivery basis, for payment and delivery at a later date. The price and yield generally are fixed on the date of commitment to purchase. From the time of purchase until settlement, no interest accrues to the Fund. At the time of settlement, the market value of the security may differ from the purchase price. The higher yields and high income sought by the Fund may be obtainable from high yield, higher risk securities in the lower rating categories of the established rating services. These securities are rated Ba or lower by Moody's or BB or lower by S&P. The Fund may invest in securities rated as low as C by Moody's or S&P, which may indicate that the obligations are speculative to a high degree and often in default. Securities rated lower than Baa or BBB (and comparable unrated securities) are commonly referred to as "high yield" or "junk" bonds and are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the Fund's best interest to retain or dispose of the security. However, should any individual bond held by the Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics. The Fund may not borrow money in excess of 20% of its total assets, except as a temporary measure for extraordinary or emergency purposes or except in connection with reverse repurchase agreements. In addition, as a matter of non-fundamental policy, the Fund may not invest more than 15% of its net assets in illiquid securities. These instruments may be difficult to sell promptly at an acceptable price, and the sale of certain of these instruments may be subject to legal restrictions. Difficulty in selling these instruments may result in a loss or may be costly to the Fund. A description of these and other policies and restrictions is contained under "Investment Restrictions" below. The Fund's investment objectives are fundamental and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. Except for the Fund's investment objectives and those investment restrictions specifically identified as fundamental, all investment policies and practices described in the Prospectus and in this SAI are non-fundamental, and may be changed by the Board of Trustees without shareholder approval. There can be no assurance that the Fund's objectives will be met. The different types of securities and investment techniques used by the Fund involve varying degrees of risk. For information about the particular risks associated with each type of investment, see the descriptions of risk factors below, and the "Risk Factors and Investment Techniques" section of the Prospectus. INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND The Fund's investment objectives as set forth in the Prospectus under "Investment Objectives and Policies," together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed with respect to the Fund without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (ii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (iv) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (v) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vi) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (vii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS The Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market or to other factors, is liquid; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that the Fund may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) make investments in securities for the purpose of exercising control or management of the issuer. (vi) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund--or of the Fund and of other accounts under the investment management of the persons rendering investment advice to the Fund--for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (vii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions; the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin; (viii) borrow amounts in excess of 20% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for extraordinary or emergency purposes or except in connection with reverse repurchase agreements, provided that the Fund maintains net asset coverage of at least 300% for all borrowings; and (ix) mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund (except as may be necessary in connection with permitted borrowings and then not in excess of 20% of the Fund's total assets); provided, however, this does not prohibit escrow, collateral or margin arrangements in connection with its use of options, short sales, futures contracts and options on future contracts. IVY MONEY MARKET FUND The Fund seeks to obtain as high a level of current income as is consistent with the preservation of capital and liquidity by investing in high-quality, short-term securities. The Fund's investment objective is fundamental and may not be changed without the approval of a majority of the Fund's outstanding voting shares, although the Trustees may make non-material changes in the Fund's objectives without shareholder approval. Except for the Fund's investment objective and those investment restrictions specifically identified as fundamental, all investment policies and practices described in the Prospectus and in this SAI are not fundamental and therefore may be changed by the Trustees without shareholder approval. There can be no assurance that the Fund will achieve its investment objectives. The different types of securities and investment techniques used by the Fund involve varying degrees of risk. For information about the particular risks associated with each type of investment, see the description of risk factors below, and the "Risk Factors and Investment Techniques" section of the Prospectus. Whenever an investment objective, policy or restriction described in the Prospectus or in this SAI states a maximum percentage of assets that may be invested in a security or other asset, or describes a policy regarding quality standards, that percentage limitation or standard will, unless otherwise indicated, apply to the Fund only at the time a transaction takes place. Thus, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage that results from circumstances not involving any affirmative action by the Fund will not be considered a violation. The Fund invests in money market instruments maturing within thirteen months or less and maintains a portfolio with a dollar-weighted average maturity of 90 days or less. By purchasing such short-term securities, the Fund will attempt to maintain a constant net asset value of $1.00 per share. The Funds portfolio of investments is actively monitored on a daily basis to maintain competitive yields on investments. The Fund will invest in the following categories of money market instrument: (i) debt securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities; (ii) obligations (including certificates of deposits and bankers' acceptances) of domestic banks and savings and loan associations; (iii) high-quality commercial paper that at the time of purchase is rated at least A-2 by Moody's or AA or P-2 by S&P or, if unrated, is issued or guaranteed by a corporation with outstanding debt rated AA or higher by S&P or Aa or higher by Moody's or which is judged by IMI to be of at least equivalent quality; (iv) short-term corporate notes, bonds and debentures that at the time of purchase are rated at least Aa by Moody's or AA by S&P or that are judged by IMI to be of at least equivalent quality; and (v) repurchase agreements with domestic banks for periods not exceeding seven days and only with respect to U.S. government securities that throughout the period have a value at least equal to the amount of the loan (including accrued interest). The securities in which the Fund invests must present minimal credit risk and be rated in one of the two highest short-term rating categories for debt obligations by at least two nationally recognized statistical rating organizations ("NRSROs") assigning a rating to the securities or issuer, or if only one NRSRO has assigned a rating, by that agency or determined to be of equivalent value by IMI. Purchases of securities that are rated by only one NRSRO must be previously approved or ratified subsequently by the Trustees. Securities that are rated in the highest short-term rating category by at least two NRSROs (or that have been issued by an issuer that is rated with respect to a class of short-term debt obligations, or any security within that class, comparable in priority and quality with such securities) are designated "First Tier Securities." Securities rated in the two highest short-term rating categories by at least two NRSROs, but which are not rated in the highest category by two or more NRSROs, are designated "Second Tier Securities." IMI shall determine whether a security presents minimal credit risk under procedures adopted by the Board of Trustees. The Fund may not invest more than 5% of its total assets in the securities of any one issuer. This limitation shall not apply to U.S. Government securities. Further, the Fund will not invest more than the greater of 1% of its total assets or one million dollars in the securities of a single issuer that were Second Tier Securities when acquired by the Fund. In addition, the Fund may not invest more than 5% of its total assets in securities that are Second Tier Securities when acquired by the Fund. As a fundamental policy, the Fund may not borrow money, except for temporary purposes, and then only in an amount not exceeding 10% of the value of the Fund's total assets. INVESTMENT RESTRICTIONS FOR IVY MONEY MARKET FUND The Fund's investment objectives as set forth in the Prospectus under "Investment Objective and Policies," together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act, of the Fund's outstanding voting shares. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time, although the Fund may concentrate its investments in instruments issued by domestic banks in accordance with its Prospectus and applicable law. ADDITIONAL RESTRICTIONS The Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest more than 5% of the value of its total assets in the securities of unseasoned issuers, including their predecessors, which have been in operation for less than three years; (iii) invest more than 5% of the value of its total assets in the securities of issuers which are not readily marketable; (iv) engage in the purchase and sale of puts, calls, straddles or spreads (except to the extent described in the Prospectus and in this SAI); (v) invest in companies for the purpose of exercising control of management; (vi) purchase any security which it is restricted from selling to the public without registration under the Securities Act of 1933; (vii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (viii) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (ix) purchase securities on margin; (x) sell securities short; (xi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act; or (xii) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidation; Under the 1940 Act, the Fund is permitted, subject to the above investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund will continue to interpret fundamental investment restriction (v) as prohibiting investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which a Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stock changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock, although typically not as much as the price of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. DEBT SECURITIES IN GENERAL. Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). A Fund may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or BBB by S&P, and comparable unrated securities (commonly referred to as "high yield" or "junk" bonds), including many emerging markets bonds, are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The lower the ratings of corporate debt securities, the more their risks render them like equity securities. Such securities carry a high degree of risk (including the possibility of default or bankruptcy of the issuers of such securities), and generally involve greater volatility of price and risk of principal and income (and may be less liquid) than securities in the higher rating categories. (See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics.) Lower rated and unrated securities are especially subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. During an economic downturn or period of rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to service their principal and interest payment obligations. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. Changes in interest rates may have a less direct or dominant impact on high yield bonds than on higher quality issues of similar maturities. However, the price of high yield bonds can change significantly or suddenly due to a host of factors including changes in interest rates, fundamental credit quality, market psychology, government regulations, U.S. economic growth and, at times, stock market activity. High yield bonds may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, a Fund may have to replace the security with a lower yielding security. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market or because of a decline in the value of such securities. A thin trading market may limit the ability of a Fund to accurately value high yield securities in the Fund's portfolio, could adversely affect the price at which the Fund could sell such securities, and cause large fluctuations in the daily net asset value of the Fund's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of low-rated debt securities, especially in a thinly traded market. When secondary markets for high yield securities become relatively less liquid, it may be more difficult to value the securities, requiring additional research and elements of judgment. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high yield securities market can change suddenly and unexpectedly, and even recently issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. For these reasons, it is the policy of IMI not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of a Fund's investment objectives by investment in such securities may be more dependent on IMI's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the best interest of each Fund to retain or dispose of such security. However, should any individual bond held by any Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. Prices for high yield securities may be affected by legislative and regulatory developments. For example, Federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, Congress has from time to time considered legislation that would restrict or eliminate the corporate tax deduction for interest payments in these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayments, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain Federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association, and Student Loan Marketing Association. MUNICIPAL SECURITIES. Municipal securities are debt obligations that generally have a maturity at the time of issue in excess of one year and are issued to obtain funds for various public purposes. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities, or, in some cases, from the proceeds of a special excise of a specific revenue source. Industrial development bonds or private activity bonds are issued by or on behalf of public authorities to obtain funds for privately-operated facilities and are in most cases revenue bonds that generally do not carry the pledge of the full faith and credit of the issuer of such bonds, but depend for payment on the ability of the industrial user to meet its obligations (or on any property pledged as security). The market prices of municipal securities, like those of taxable debt securities, go up and down when interest rates change. Thus, the net asset value per share can be expected to fluctuate and shareholders may receive more or less than their purchase price for shares they redeem. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in a Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to each Fund on a current basis, but is in effect compounded, the value of the securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of certain debt securities are often offered on a "when-issued" basis, meaning the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the date of the commitment to purchase. Firm commitment agreements call for the purchase of securities at an agreed-upon price on a specified future date. A Fund may use such investment techniques in order to secure what is considered to be an advantageous price and yield to the Fund and not for purposes of leveraging such Fund's assets. In either instance, each Fund will maintain in a segregated account with its Custodian cash or liquid securities equal (on a daily market-to-market basis) to the amount of its commitment to purchase the underlying securities. ILLIQUID SECURITIES Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of a Fund. It is the policy of Ivy Bond Fund and Ivy International Strategic Bond Fund that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between a Fund's decision to sell a restricted or illiquid security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, a Fund may be required to bear all or part of the registration expenses. A Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which Ivy Bond Fund and Ivy International Strategic Bond Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares ("GDSs") and related depository instruments, and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in the Fund's domestic investments. Although IMI intends to invest each Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which each Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, each Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. It may be more difficult for each Fund's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the United States and foreign countries may be less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. IMI seeks to mitigate the risks to each Fund associated with the foregoing considerations through investment variation and continuous professional management. DEPOSITORY RECEIPTS ADRs, GDRs, ADSs, GDSs and related securities are depository instruments, the issuance of which is typically administered by a U.S. or foreign bank or trust company. These instruments evidence ownership of underlying securities issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges or over-the-counter ("OTC") in the United States. Unsponsored programs are organized independently and without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. EMERGING MARKETS Ivy Bond Fund and Ivy International Strategic Bond Fund could have significant investments in securities traded in emerging markets. Investors should recognize that investing in such countries involves special considerations, in addition to those set forth above, that are not typically associated with investing in United States securities and that may affect each Fund's performance favorably or unfavorably. In recent years, many emerging market countries around the world have undergone political changes that have reduced government's role in economic and personal affairs and have stimulated investment and growth. Historically, there is a strong direct correlation between economic growth and stock market returns. While this is no guarantee of future performance, IMI believes that investment opportunities (particularly in the energy, environmental services, natural resources, basic materials, power, telecommunications and transportation industries) may result within the evolving economies of emerging market countries from which each Fund and its shareholders will benefit. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. Such risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies that may restrict each Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until relatively recently in certain Eastern European countries, of a capital market structure or market-oriented economy; (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries; and (viii) the possibility that currency devaluations could adversely affect the value of each Fund's investments. Further, many emerging markets have experienced and continue to experience high rates of inflation. Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, a Fund could lose a substantial portion of any investments it has made in the affected countries. Further, few (if any) accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial in relation to the actual market values and may be adverse to each Fund's net asset value. Certain Eastern European countries that do not have well-established trading markets are characterized by an absence of developed legal structures governing private and foreign investments and private property. In addition, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of each Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of each Fund's cash and securities, each Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. FOREIGN SOVEREIGN DEBT OBLIGATIONS Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service it debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt (including Ivy Bond Fund or Ivy International Strategic Bond Fund) may be request to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part. BRADY BONDS Ivy International Strategic Bond Fund may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the `Brady Plan"). Brady Plan debt restructurings have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela. Brady Bonds have been issued only recently, and for that reason do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (but primarily the U.S. dollar) and are actively traded in over-the-counter secondary markets. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least one year's rolling interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. Brady Bonds are often viewed as having three or four valuation components: the collateralized repayment of principal at final maturity; the collateralized interest payments; the uncollateralized interest payments; and any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk"). In light of the residual risk of Brady Bonds and the history of defaults of countries issuing Brady Bonds, with respect to commercial bank loans by public and private entities, investments in Brady Bonds may be viewed as speculative. LOAN PARTICIPATIONS AND ASSIGNMENTS Ivy International Strategic Bond Fund may invest in fixed- and floating-rate loans ("Loans") arranged through private negotiations between an issuer of emerging market debt instruments and one or more financial institutions ("Lenders"). The Fund's investments in Loans are expected in most instances to be in the form of participations in Loans ("Participations") and assignments of portions of Loans ("Assignments") from third parties. Participations typically will result in the Fund having a contractual relationship only with the Lender and not with the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund will assume the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the Lender selling a Participation, the Fund may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. The Fund will acquire Participations only if the Lender interpositioned between the Fund and the borrower is determined by the Adviser to be creditworthy. When the Fund purchases Assignments from Lenders, it will acquire direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, however, the rights and obligations acquired by the Fund as the purchaser of an Assignment may differ from, and may be more limited than, those held by the assigning Lender. The Fund may have difficulty disposing of Assignments and Participation. Because no liquid market for these obligations typically exists, the Fund anticipates that these obligations could be sold only to a limited number of institutional investors. The lack of a liquid secondary market will have an adverse effect on the Fund's ability to dispose of particular Assignments or Participations when necessary to meet the Fund's liquidity needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for Assignments and Participations may also make it more difficult for the Fund to assign a value to those securities for purposes of valuing the Fund's portfolio and calculating its net asset value. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, Ivy Bond Fund and Ivy International Strategic Bond Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs and may purchase forward foreign currency contracts. Because of these factors, the value of the assets of each of these Funds as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and each Fund may incur costs in connection with conversions between various currencies. Although each Fund's custodian values the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. Each Fund will do so from time to time, however, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Each Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. Because Ivy Bond Fund and Ivy International Strategic Bond Fund normally will be invested in both U.S. and foreign securities markets, changes in each Fund's share price may have a low correlation with movements in U.S. markets. Each Fund's share price will reflect the movements of the different stock and bond markets in which it is invested (both U.S. and foreign), and of the currencies in which the investments are denominated. Thus, the strength or weakness of the U.S. dollar against foreign currencies may account for part of each Fund's investment performance. U.S. and foreign securities markets do not always move in step with each other, and the total returns from different markets may vary significantly. Currencies in which each Fund's assets are denominated may be devalued against the U.S. dollar, resulting in a loss to a Fund. FOREIGN CURRENCY EXCHANGE TRANSACTIONS Ivy Bond Fund and Ivy International Strategic Bond Fund may enter into forward foreign currency contracts in order to protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date (usually less than a year), and typically is individually negotiated and privately traded by currency traders and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for commissions, they do realize a profit based on the difference between the price at which they are buying and selling various currencies. Although these contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. While Ivy Bond Fund and Ivy International Strategic Bond Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for each of these Funds than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Fund from achieving the intended hedge or expose a Fund to the risk of currency exchange loss. Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase currency forwards and combine such purchases with sufficient cash or short-term securities to create unleveraged substitutes for investments in foreign markets when deemed advantageous. Each Fund may also combine the foregoing with bond futures or interest rate futures contracts to create the economic equivalent of an unhedged foreign bond position. Ivy Bond Fund and Ivy International Strategic Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which each Fund has or in which each Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to a Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which a Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, Ivy Bond Fund and Ivy International Strategic Bond Fund are permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. Each Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, a Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, each Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. Each Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by a Fund. Each Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER. Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. Each Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on a Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of each Fund's borrowings will be fixed, a Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. SHORT SALES Ivy International Strategic Bond Fund may engage in short sale transactions in fixed-income securities. Short selling involves the sale of borrowed securities. At the time a short sale is effected, the Fund incurs an obligation to replace the security borrowed at whatever its price may be at the time that the Fund purchases it for delivery to the lender. When a short sale transaction is closed out by delivery of the securities, any gain or loss on the transaction is taxable as a short-term capital gain or loss. Until the security is replaced, the Fund is required to pay to the lender amounts equal to any dividends or interest which accrue during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. Until the Fund replaces a borrowed security in connection with a short sale, the Fund will: (a) maintain daily a segregated account containing cash or liquid securities, at such level that (i) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will equal the current value of the security sold short and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time it was sold short; or (b) otherwise cover its short position. Since short selling can result in profits when bond prices generally decline, Ivy International Strategic Bond Fund in this manner, can, to a certain extent, hedge the market risk to the value of its other investments and protect its equity in a declining market. However, the Fund could, at any given time, suffer both a loss on the purchase or retention of one security, if that security should decline in value, and a loss on a short sale of another security, if the security sold short should increase in value. If the Fund sells short one security to hedge a position in a similar security, the Fund could experience a loss due to an increase in the price of the security sold short resulting from an incorrectly perceived correlation between the two securities or a correlation not present at the time of the short sale transaction. Moreover, to the extent that in a generally rising market the Fund maintains short positions in securities rising with the market, the net asset value of the Fund would be expected to increase to a lesser extent than the net asset value of an investment company that does not engage in short sales. OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligation in an OTC transaction, the Fund would negotiate directly with the counterparty. Ivy Bond Fund or Ivy International Strategic Bond Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that a Fund has written lapses unexercised, because a Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by a Fund, are taxable as ordinary income. See "Taxation." Ivy Bond or Ivy International Strategic Bond Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by each Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When a Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. Ivy Bond Fund and Ivy International Strategic Bond Fund may write (sell) covered call options on the Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. Each of these Funds may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the for the options). In view of the investment objectives of these Funds, each Fund generally would write call options only in circumstances where the investment adviser to the Fund does not anticipate significant appreciation of the underlying security in the near future or has otherwise determined to dispose of the security. A "covered" call option means generally that so long as a Fund is obligated as the writer of a call option, the Fund will (i) own the underlying securities subject to the option, or (ii) have the right to acquire the underlying securities through immediate conversion or exchange of convertible preferred stocks or convertible debt securities owned by the Fund. Although each Fund receives premium income from these activities, any appreciation realized on an underlying security will be limited by the terms of the call option. Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, each Fund receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period, if the option is exercised. So long as the Fund remains obligated as a writer of a call option, it forgoes the opportunity to profit from increases in the market price of the underlying security above the exercise price of the option, except insofar as the premium represents such a profit (and retains the risk of loss should the value of the underlying security decline). PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase put options on underlying securities owned by the Funds as a defensive technique in order to protect against an anticipated decline in the value of the securities. Each of these Funds, as the holder of the put option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that a Fund must pay. These costs will reduce any profit the Fund might have realized had it sold the underlying security instead of buying the put option. The premium paid for the put option would reduce any capital gain otherwise available for distribution when the security is eventually sold. The purchase of put options will not be used by any Fund for leverage purposes. Ivy Bond Fund and Ivy International Strategic Bond Fund may also purchase put options on underlying securities that they own and at the same time write a call option on the same security with the same exercise price and expiration date. Depending on whether the underlying security appreciates or depreciates in value, the Fund would sell the underlying security for the exercise price either upon exercise of the call option written by it or by exercising the put option held by it. A Fund would enter into such transactions in order to profit from the difference between the premium received by the Fund for the writing of the call option and the premium paid by the Fund for the purchase of the put option, thereby increasing the Fund's current return. The Funds may write (sell) put options on individual securities only to effect a "closing sale transaction." PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase and sell (write) put and call options on securities indices. An index assigns relative values to the securities included in the index and the index fluctuates with changes in the market values of the securities so included. Call options on indices are similar to call options on individual securities, except that, rather than giving the purchaser the right to take delivery of an individual security at a specified price, they give the purchaser the right to receive cash. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars, times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The multiplier for an index option performs a function similar to the unit of trading for a stock option. It determines the total dollar value per contract of each point in the difference between the exercise price of an option and the current level of the underlying index. A multiplier of 100 means that a one-point difference will yield $100. Options on different indices have different multipliers. When a Fund writes a call or put option on a stock index, the option is "covered," in the case of a call, or "secured," in the case of a put, if the Fund maintains in a segregated account with the Custodian cash or liquid securities equal to the contract value. A call option is also covered if the Fund holds a call on the same index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. A put option is also "secured" if the Fund holds a put on the same index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written or (ii) less than the exercise price of the put written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of a U.S. option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities (or cash in the case of an index option) at the exercise price. If a put or call option purchased by Ivy Bond Fund or Ivy International Strategic Bond Fund is not sold when it has remaining value, and if the market price of the underlying security (or index), in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security (or index) is purchased to hedge against price movements in a related security (or securities), the price of the put or call option may move more or less than the price of the related security (or securities). In this regard, there are differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. There can be no assurance that a liquid market will exist when Ivy Bond Fund or Ivy International Strategic Bond Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position. Finally, trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. Closing transactions can be made for OTC options only by negotiating directly with the counterparty or by a transaction in the secondary market, if any such market exists. Transfer of an OTC option is usually prohibited absent the consent of the original counterparty. There is no assurance that a Fund will be able to close out an OTC option position at a favorable price prior to its expiration. An OTC counterparty may fail to deliver or to pay, as the case may be. In the event of insolvency of the counterparty, a Fund might be unable to close out an OTC option position at any time prior to its expiration. Although a Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. When conducted outside the U.S., options transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and liquidity. Ivy Bond Fund's and Ivy International Strategic Bond Fund's options activities also may have an impact upon the level of their portfolio turnover and brokerage commissions. See "Portfolio Turnover." Each Fund's success in using options techniques depends, among other things, on IMI's ability to predict accurately the direction and volatility of price movements in the options and securities markets, and to select the proper type, timing of use and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS IN GENERAL. Ivy Bond Fund and Ivy International Strategic Bond Fund may enter into futures contracts and options on futures contracts for hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a commodity at a specified price and time. When a purchase or sale of a futures contract is made by a Fund, that Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or liquid securities ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, each Fund will mark-to-market its open futures position. Each Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery of offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, each Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, each Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. When purchasing a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund, or, if lower, may cover the difference with cash or short-term securities. When selling a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). When selling a call option on a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, equal the total market value of the futures contract underlying the call option. Alternatively, a Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund, or covering the difference if the price is higher. When selling a put option on a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that equal the purchase price of the futures contract less any margin on deposit. Alternatively, a Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund, or, if lower, the Fund may hold securities to cover the difference. INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is an agreement between parties to buy or sell a specified debt security at a set price on a future date. The financial instruments that underlie interest rate futures contracts include long-term U.S. Treasury bonds, U.S. Treasury notes, and three-month U.S. Treasury bills. In the case of futures contracts traded on U.S. exchanges, the exchange itself or an affiliated clearing corporation assumes the opposite side of each transaction (i.e., as buyer or seller). A futures contract may be satisfied or closed out by delivery or purchase, as the case may be in the cash financial instrument or by payment of the change in cash value of the index. Frequently, using futures to effect a particular strategy instead of using the underlying or related security will result in lower transaction costs being incurred. Ivy Bond Fund and Ivy International Strategic Bond Fund may sell interest rate futures contracts in order to hedge their portfolio securities whose value may be sensitive to changes in interest rates. In addition, each of these Funds could purchase and sell these futures contracts in order to hedge its holdings in certain common stocks (such as utilities, banks and savings and loan) whose value may be sensitive to change in interests rates. Each Fund could sell interest rate futures contracts in anticipation of or doing a market decline to attempt to offset the decrease in market value of its securities that might otherwise result. When a Fund is not fully invested in securities, it could purchase interest rate futures in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that it intends to purchase. If such purchases are made, an equivalent amount of interest rate futures contracts will be terminated by offsetting sales. Each Fund may also maintain the futures contract as a substitute for the underlying securities. OPTIONS ON INTEREST RATE FUTURES CONTRACTS. Ivy Bond Fund and Ivy International Strategic Bond Fund may also purchase and write put and call options on interest rate futures contracts which are traded on a U.S. exchange or board of trade and sell or purchase such options to terminate an existing position. Options on interest rate futures give the purchaser the right (but not the obligation), in return for the premium paid, to assume a position in an interest rate futures contract at a specified exercise price at a time during the period of the option. Transactions in options on interest rate futures would enable each Fund to hedge against the possibility that fluctuations in interest rates and other factors may result in a general decline in prices of debt securities owned by the Fund. Assuming that any decline in the securities being hedged in accomplished by a rise in interest rates, the purchase of put options and sale of call options on the futures contracts may generate gains which can partially offset any decline in the value of the particular Fund's portfolio securities which have been hedged. However, if after a Fund purchases or sells an option on a futures contract, the value of the securities being hedged moves in the opposite direction from that contemplated, the Fund may experience losses in the form of premiums on such options which would partially offset gains the Fund would have. SWAPS, CAPS, FLOORS AND COLLARS. Ivy International Strategic Bond Fund may enter into interest rate, currency, credit and index swaps and the purchase or sale of related caps, floors and collars. The Fund expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. The Fund intends to use these transactions as hedges and not as speculative investments and will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Fund may be obligated to pay. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. A currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value differential among them and an index swap is an agreement to swap cash flows on a notional amount based on changes in the values of the reference indices. Credit swaps involve the exchange by the Fund with a counterparty of their respective commitments to pay or receive the difference in interest rates between a firm or country's rate and the risk free rate. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined range of interest rate or values. Ivy International Strategic Bond Fund may enter credit protection swap arrangements involving the sale by the Fund of a put option on a debt security which is exercisable by the buyer upon certain events, such as a default by the referenced creditor on the underlying debt or a bankruptcy event of the creditor. The Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps, caps, floors and collars are entered into for good faith hedging purposes, IMI and the Fund believe such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to its borrowing restrictions. The Fund will not enter into any swap, cap, floor or collar transaction unless, at the time of entering into such transaction, the unsecured long-term debt of the counterparty, combined with any credit enhancements, is rated at least A by S&P or Moody's or has an equivalent rating from a nationally recognized statistical rating organization or is determined to be of equivalent credit quality by IMI. If there is a default by the counterparty, the Fund may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Caps, floors and collars are more recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they are less liquid than swaps. FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Ivy Bond Fund and Ivy International Strategic Bond Fund may engage in foreign currency futures contracts and related options transactions for hedging purposes. A foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a foreign currency at a specified price and time. An option on a foreign currency futures contract gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon the exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase call and put options on foreign currencies as a hedge against changes in the value of the U.S. dollar (or another currency) in relation to a foreign currency in which portfolio securities of each of these Funds may be denominated. A call option on a foreign currency gives the buyer the right to buy, and a put option the right to sell, a certain amount of foreign currency at a specified price during a fixed period of time. Each Fund may invest in options on foreign currency which are either listed on a domestic securities exchange or traded on a recognized foreign exchange. In those situations where foreign currency options may not be readily purchased (or where such options may be deemed illiquid) in the currency in which the hedge is desired, the hedge may be obtained by purchasing an option on a "surrogate" currency, i.e., a currency where there is tangible evidence of a direct correlation in the trading value of the two currencies. A surrogate currency's exchange rate movements parallel that of the primary currency. Surrogate currencies are used to hedge an illiquid currency risk, when no liquid hedge instruments exist in world currency markets for the primary currency. Each Fund will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade, or similar entity or quoted on an automated quotation system. Each Fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the aggregate initial margin deposits for futures contracts held by the Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," would exceed 5% of the liquidation value of the Fund's portfolio (or the Fund's net asset value), after taking into account unrealized profits and unrealized losses on any such contracts the Fund has entered into. A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. For additional information about margin deposits required with respect to futures contracts and options thereon, see "Futures Contracts and Options on Futures Contracts." RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in a Fund's portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an active secondary market will continue to exist. Currency futures contracts and options thereon may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such position also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. SECURITIES INDEX FUTURES CONTRACTS Ivy International Strategic Bond Fund may enter into securities index futures contracts as an efficient means of regulating the Fund's exposure to the equity markets. The Fund will not engage in transactions in futures contracts for speculation, but only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. The value of a unit is the current value of the stock index. For example, the S&P 500 Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The index futures contract specifies that no delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if the Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). RISKS OF SECURITIES INDEX FUTURES. Ivy International Strategic Bond Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. The Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, the Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although the Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when the Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, the Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. The Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. The Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. When purchasing an index futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, the Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund. When selling an index futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in cash or liquid assets in a segregated account with the Fund's custodian). COMBINED TRANSACTIONS. Ivy Bond Fund and Ivy International Strategic Bond Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts) and multiple interest rate transactions and some combination of futures, options, currency and interest rate transactions ("component" transactions), instead of a single transaction, as part of a single or combined strategy when, in the opinion of IMI, it is in the best interests of a Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. PORTFOLIO TURNOVER Ivy Bond Fund and Ivy International Strategic Bond Fund purchase securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each of these Funds may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining the Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. TRUSTEES AND OFFICERS Each Fund's Board of Trustees (the "Board") is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering each Fund's day-to-day operations. The Trustees and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: POSITION WITH BUSINESS AFFILIATIONS NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS John S. Anderegg, Jr. Trustee Chairman, Dynamics Research 60 Concord Street Corp. (instruments and controls); Wilmington, MA 01887 Director, Burr-Brown Corp. Age: 75 (operational amplifiers); Director, Metritage Incorporated (level measuring instruments); Trustee of Mackenzie Series Trust (1992-1998). James W. Broadfoot President President, Ivy Management Inc. 700 South Federal Hwy. and (1996-present); Senior Vice Suite 300 Trustee President, Ivy Management, Inc. Boca Raton, FL 33432 (1992-1996); Director and Senior Age: 56 Vice President, Mackenzie [*Deemed to be an Investment Management Inc. (1995- "interested person" present); Senior Vice President, of the Trust, as Mackenzie Investment Management defined under the Inc. (1990-1995). 1940 Act.] Paul H. Broyhill Trustee Chairman, BMC Fund, Inc. 800 Hickory Blvd. (1983-present); Chairman, Golfview Park-Box 500 Broyhill Family Foundation, Lenoir, NC 28645 Inc. (1983-Present); Chairman Age: 75 and President, Broyhill Investments, Inc. (1983-present); Chairman, Broyhill Timber Resources (1983-present); Management of a personal portfolio of fixed-income and equity investments (1983- present); Trustee of Mackenzie Series Trust (1988-1998); Director of The Mackenzie Funds Inc. (1988-1995). Keith J. Carlson Chairman Senior Vice President of 700 South Federal Hwy. and Mackenzie Investment Management, Suite 300 Trustee Inc. (1996-present); Senior Vice Boca Raton, FL 33432 President and Director of Age: 42 Mackenzie Investment Management, [*Deemed to be an Inc. (1994-1996); Senior Vice "interested person" President and Treasurer of of the Trust, as defined Mackenzie Investment Management, under the Inc. (1989-1994); Senior Vice 1940 Act.] President and Director of Ivy Management Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management Inc. (1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); Senior Vice President and Director, Ivy Mackenzie Services Corp. (1996- present); President and Director of Ivy Mackenzie Services Corp. (1993-1996); Trustee and President of Mackenzie Series Trust (1996-1998); Vice President of Mackenzie Series Trust (1994- 1998); Treasurer of Mackenzie Series Trust (1985-1994); President, Chief Executive Officer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Executive Vice President and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); Trustee of Mackenzie Series Trust (1996-1998). Stanley Channick Trustee President and Chief Executive 11 Bala Avenue Officer, The Whitestone Bala Cynwyd, PA 19004 Corporation (insurance agency); Age: 75 Chairman, Scott Management Company (administrative services for insurance companies); President, The Channick Group (consultants to insurance companies and national trade associations); Trustee of Mackenzie Series Trust (1994- 1998); Director of The Mackenzie Funds Inc. (1994-1995). Roy J. Glauber Trustee Mallinckrodt Professor of Lyman Laboratory Physics, Harvard University of Physics (1974-present); Trustee of Harvard University Mackenzie Series Trust (1994- Cambridge, MA 02138 1997). Age: 73 Dianne Lister Trustee President and Chief Executive 556 University Avenue Officer, The Hospital for Sick Toronto, Ontario L4J 2T4 Children Foundation (1993- present); Chief Operating Officer, The Hospital for Sick Children Foundation (1992-1993); Executive Vice President, The Hospital for Sick Children Foundation (1991-1992). Joseph G. Rosenthal Trustee Chartered Accountant 110 Jardin Drive (1958-present); Trustee of Unit #12 Mackenzie Series Trust Concord, Ontario Canada (1985-1998); Director of L4K 2T7 The Mackenzie Funds Inc. Age: 64 (1987-1995). Richard N. Silverman Trustee Director, Newton-Wellesley 18 Bonnybrook Road Hospital; Director, Beth Waban, MA 02168 Israel Hospital; Director, Age: 75 Boston Ballet; Director, Boston Children's Museum; Director, Brimmer and May School. J. Brendan Swan Trustee President, Airspray Inter- 4701 North Federal Hwy. national, Inc.; Joint Managing Suite 465 Director, Airspray International Pompano Beach, FL 33064 B.V. (an environmentally sensitive Age: 69 packaging company); Director of Polyglass LTD.; Director, The Mackenzie Funds Inc. (1992-1995); Trustee of Mackenzie Series Trust (1992-1998). Edward M. Tighe Trustee Chief Executive Officer, CITCO 5900 N. Andrews Avenue Technology Management, Inc. Suite 700 ("CITCO") (computer software Ft. Lauderdale, FL 33309 development and consulting) (1999-present); President and Director, Global Technology Management, Inc. (CITCO's predecessor) (1992-1998); Managing Director, Global Mutual Fund Services, Ltd. (financial services firm); President, Director and Chief Executive Officer, Global Mutual Fund Services, Inc. (1994-present). C. William Ferris Secretary/ Senior Vice President, 700 South Federal Hwy. Treasurer Chief Financial Officer Suite 300 and Secretary/Treasurer Boca Raton, FL 33432 of Mackenzie Investment Age: 54 Management Inc. (1995-present); Senior Vice President, Finance and Administration/Compliance Officer of Mackenzie Investment Management Inc. (1989-1994); Senior Vice President, Secretary/ Treasurer and Clerk of Ivy Management Inc. (1994- present); Vice President, Finance/Administration and Compliance Officer of Ivy Management Inc. (1992-1994); Senior Vice President, Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); President and Director of Ivy Mackenzie Services Corp. (1996-present); Secretary/Treasurer and Director of Ivy Mackenzie Services Corp. (1993-1996); Secretary/Treasurer of The Mackenzie Funds Inc. (1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994-1998). COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 1999) PENSION OR TOTAL RETIREMENT ESTIMATED COMPENSATION BENEFITS ANNUAL FROM TRUST AGGREGATE ACCRUED AS BENEFITS AND FUND NAME, COMPENSATION PART OF FUND UPON COMPLEX PAID POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES John S. Anderegg, Jr. (Trustee) James W. Broadfoot (Trustee and President) Paul H. Broyhill (Trustee) Keith J. Carlson (Trustee and Chairman) Stanley Channick (Trustee) Frank W. DeFriece, Jr. (Trustee) Dianne Lister (Trustee) Roy J. Glauber (Trustee) Joseph G. Rosenthal (Trustee) Richard N. Silverman (Trustee) J. Brendan Swan (Trustee) C. William Ferris (Secretary/ Treasurer) * The Fund complex consists of Ivy Fund and Mackenzie Solutions. To the knowledge of the Trust, as of [ ], no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions [to be completed by amendment]. PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted to engage in personal securities transactions, subject to the requirements and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the "Code of Ethics"). The Code of Ethics is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as each Fund. Among other things, the Code of Ethics, which IMI believes complies with Rule 17j-1 under the 1940 Act prohibits, certain types of transactions absent prior approval, applies to portfolio managers, traders, research analysts and others involved in the investment advisory process, and imposes time periods during which personal transactions in certain securities may not be made, and requires the submission of duplicate broker confirmations and quarterly and annual reporting of securities transactions. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate officers or compliance personnel. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI provides business management and investment advisory services to each Fund pursuant to a Business Management and Investment Advisory Agreement (the "Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation organized under the laws of Ontario whose shares are listed for trading on the TSE. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund. IMI also currently acts as manager and investment adviser to the other series of Ivy Fund and the five series of Mackenzie Solutions. IMI also provides business management services to Ivy Global Natural Resources Fund. The Agreement obligates IMI to make investments for the account of each Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. IMI also determines the securities to be purchased or sold by each Fund and places orders with brokers or dealers who deal in such securities. Under the Agreement, IMI also provides certain business management services. IMI is obligated to (1) coordinate with each Fund's Custodian and monitor the services it provides to the Fund; (2) coordinate with and monitor any other third parties furnishing services to each Fund; (3) provide each Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund's needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by each Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with the Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. Ivy Bond Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 0.75% of the first $100 million of the Fund's average net assets, reduced to 0.50% of the Fund's average net assets in excess of $100 million. During the fiscal years ended December 31, [ ] 1997, 1998 and 1999, Ivy Bond Fund paid IMI fees of $800,555, $1,042,273, and [ ]respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0, and [ ] respectively. Ivy International Strategic Bond Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 0.75% of the Fund's average net assets. For the fiscal year ended December 31, 1999, Ivy International Strategic Bond Fund paid IMI fees of $[ ]. [During the same period, IMI reimbursed Fund expenses in the amount of [ ].] Ivy Money Market Fund pays IMI a monthly fee for providing business management and investment advisory services, based on the Fund's average daily net assets during the preceding month at an annual rate of 0.40%. For the fiscal years ended December 31, [ ],1997, 1998 and 1999, Ivy Money Market Fund paid IMI $83,294, $102,727 and [ ], respectively. During the same periods IMI reimbursed Fund expenses in the amount of $83,294, $140,140 and [ ], respectively, pursuant to expense limitations). Under the Agreement, the Trust pays the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. IMI currently limits Ivy International Strategic Bond Fund's total operating expenses (excluding 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) to an annual rate of 1.25% of the Fund's average net assets, which may lower the Fund's expenses and increase its yield. For each of the following nine years, IMI will limit such fees to 1.75% of the Fund's average net assets. IMI currently limits Ivy Money Market Fund's total operating expenses (excluding interest, taxes, brokerage commissions, litigation, indemnification expenses, and extraordinary expenses) to an annual rate of 0.85% of the Fund's average net assets, which may lower the Fund's expenses and increase its yield. For each of the following nine years, IMI will limit such fees to 1.25% of the Fund's average net assets. The Agreement will continue in effect with respect to each Fund from year to year, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the Independent Trustees and (ii) either (a) by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund or (b) by the vote of a majority of the entire Board. If the question of continuance of the Agreement (or adoption of any new agreement) is presented to the shareholders, continuance (or adoption) shall be effected with respect to each Fund only if approved by the affirmative vote of a majority of the outstanding voting securities of that Fund. See "Capitalization and Voting Rights." The Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of that Fund, on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. The Agreement shall terminate automatically in the event of its assignment. DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of Ivy Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. Shares of Ivy Money Market Fund are sold at the Fund's net asset value per share without a sales load. Each Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund's behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at each Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Pursuant to the Distribution Agreement, IMDI is entitled to deduct a commission on all Class A shares of Ivy Bond Fund and Ivy International Strategic Bond Fund sold equal to the difference, if any, between the public offering price, as set forth in each Fund's then-current prospectus, and the net asset value on which such price is based. Out of that commission, IMDI may reallow to dealers such concession as IMDI may determine from time to time. In addition, IMDI is entitled to deduct a CDSC on the redemption of Class A shares of Ivy Bond Fund and Ivy International Strategic Bond Fund sold without an initial sales charge and Class B and Class C shares of Ivy Bond Fund and Ivy International Strategic Bond Fund, in accordance with, and in the manner set forth in, the Prospectus. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy Bond Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy Bond Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy Bond Fund. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of Ivy International Strategic Bond Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of Ivy International Strategic Bond Fund. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class C shares of Ivy International Strategic Bond Fund. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to that Fund or by a Fund by vote of either a majority of the outstanding voting securities of that Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of the Rule 18f-3 plan for Ivy Bond Fund and Ivy International Strategic Bond Fund are as follows: (i) shares of each class of the Fund represent an equal pro rata interest in that Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of each Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) each Fund's Class B shares will convert automatically into Class A shares of that Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. At a meeting held on December 1-2, 1995, the Board of the Trust adopted a multi-class plan on behalf of Ivy Money Market Fund and authorized the redesignation of the Fund's shares into Class A and Class B, respectively. On February 29, 1996, the Trustees resolved by written consent to establish a new class of shares, designated as "Class C," for all Ivy Fund portfolios. The purpose of the Class B redesignation (and the Class C designation) of shares for Ivy Money Market Fund is primarily to enable the transfer agent for the Ivy funds to track the contingent deferred sales charge period that applies to Class B and Class C shares of Ivy funds (other than Ivy Money Market Fund) that are being exchanged for shares of Ivy Money Market Fund. In all other relevant respects, Ivy Money Market Fund's Class A, Class B and Class C shares are identical (i.e., having the same arrangement for shareholder services and the distribution of securities). RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of Ivy Bond Fund and Ivy International Strategic Bond Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to each Fund's Class A, Class B and Class C shares (each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees have concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan will benefit each Fund and its shareholders. The Trustees of the Trust believe that the Plans should result in greater sales and/or fewer redemptions of each Fund's shares, although it is impossible to know for certain the level of sales and redemptions of each Fund's shares in the absence of a Plan or under an alternative distribution arrangement. Under each Plan, Ivy Bond Fund and Ivy International Strategic Bond Fund each pays IMDI a service fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the average daily net assets attributable to its Class A, Class B or Class C shares, as the case may be. This fee constitutes reimbursement to IMDI for service fees paid by IMDI. The services for which service fees may be paid include, among other things, advising clients or customers regarding the purchase, sale or retention of shares of the Fund, answering routine inquiries concerning the Fund and assisting shareholders in changing options or enrolling in specific plans. Pursuant to each Plan, service fee payments made out of or charged against the assets attributable to each Fund's Class A, Class B or Class C shares must be in reimbursement for services rendered for or on behalf of the affected class. The expenses not reimbursed in any one month may be reimbursed in a subsequent month. The Class A Plan does not provide for the payment of interest or carrying charges as distribution expenses. Under each Fund's Class B and Class C Plans, each of Ivy Bond Fund and Ivy International Strategic Bond Fund also pays IMDI a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets attributable to its Class B or Class C shares. This fee constitutes compensation to IMDI which is not dependent on expenses incurred by IMDI. IMDI may reallow to dealers all or a portion of the service and distribution fees as IMDI may determine from time to time. The distribution fee compensates IMDI for expenses incurred in connection with activities primarily intended to result in the sale of each Fund's Class B or Class C shares, including the printing of prospectuses and reports for persons other than existing shareholders and the preparation, printing and distribution of sales literature and advertising materials. Pursuant to each Class B and Class C Plan, IMDI may include interest, carrying or other finance charges in its calculation of distribution expenses, if not prohibited from doing so pursuant to an order of or a regulation adopted by the SEC. Among other things, each Plan provides that (1) IMDI will submit to the Board at least quarterly, and the Trustees will review, written reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made; (2) each Plan will continue in effect only so long as such continuance is approved at least annually, and any material amendment thereto is approved, by the votes of a majority of the Board, including the Independent Trustees, cast in person at a meeting called for that purpose; (3) payments by each Fund under each Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares of the relevant class; and (4) while each Plan is in effect, the selection and nomination of Independent Trustees of the Trust shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust. IMDI may make payments for distribution assistance and for administrative and accounting services from resources that may include the management fees paid by each Fund. IMDI also may make payments (such as the service fee payments described above) to unaffiliated broker-dealers, banks, investment advisers, financial institutions and other entities for services rendered in the distribution of each Fund's shares. To qualify for such payments, shares may be subject to a minimum holding period. However, no such payments will be made to any dealer or broker or other party if at the end of each year the amount of shares held does not exceed a minimum amount. The minimum holding period and minimum level of holdings will be determined from time to time by IMDI. A report of the amount expended pursuant to each Plan, and the purposes for which such expenditures were incurred, must be made to the Board for its review at least quarterly. The Class B Plan and underwriting agreement were amended effective March 16, 1999 to permit IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other distribution-related expenses. In connection with such amendments, the Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the amendments to the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. During the fiscal year ended December 31, 1999, Ivy Bond Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy Bond Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, Ivy Bond Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy Bond Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy Bond Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy Bond Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, Ivy International Strategic Bond Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999, Ivy Bond Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, Ivy Bond Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of Ivy International Strategic Bond Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of Ivy International Strategic Bond Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of Ivy International Strategic Bond Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. Each Plan may be amended at any time with respect to the class of shares of the Fund to which the Plan relates by vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of considering such amendment. Each Plan may be terminated at any time with respect to the class of shares of the Fund to which the Plan relates, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of that class. If the Distribution Agreement or the Distribution Plans are terminated (or not renewed) with respect to any of the Ivy funds (or class of shares thereof), each may continue in effect with respect to any other fund (or Class of shares thereof) as to which they have not been terminated (or have been renewed). CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the assets of each Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of each Fund's foreign securities. With respect to each Fund, the Custodian may receive, as partial payment for its services to that Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to a Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for each Fund. As compensation for those services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee for Ivy Money Market Fund is 0.10% of the Fund's average net assets. The monthly fee for Ivy Bond Fund and Ivy International Strategic Bond Fund is based upon the net assets of the Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. During the fiscal year ended December 31, 1999, Ivy Bond Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy International Strategic Bond Fund paid MIMI $[ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy Money Market Fund paid MIMI [ ] under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the Agreement, Ivy Bond Fund pays a monthly fee at an annual rate of $20.75 for each open Class A, Class B, Class C and Advisor Class account. Ivy International Strategic Bond Fund pays a montly fee at an annual rate of $20.00 for each open Class A, Class B, Class C, and Advisor Class account. Each Fund pays a monthly fee at an annual rate of $10.25 for each open Class I account. In addition, each Fund pays a monthly fee at an annual rate of $4.58 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for Ivy Bond Fund for the fiscal year ended December 31, 1999 totaled $[ ]. Such fees and expenses for Ivy International Strategic Bond Fund for the fiscal year ended December 31, 1999 totaled $[ ]. Ivy Money Market pays IMSC an annual fee of $22.00 per open account and $4.58 for each account that is closed, and reimburses IMSC monthly for out-of-pocket expenses. Such fees and expenses for Ivy Money Market Fund for the fiscal year ended December 31, 1999 totaled $[ ]. Certain broker-dealers that maintain shareholder accounts with each Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by IMSC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. IMSC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to each Fund. As compensation for these services, each Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets with respect to its Class A, Class B and Class C shares, and, except for Ivy Money Market Fund, Advisor Class shares. Ivy Bond Fund and Ivy International Strategic Bond Fund each pay MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I. Such fees for the fiscal year ended December 31, 1999 for Ivy Bond Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy International Strategic Bond Fund totaled $[ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy Money Market Fund totaled $[ ]. Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of Ivy Bond Fund and Ivy International Strategic Bond Fund. AUDITORS [ ], independent public accountants, has been selected as auditors for the Trust. The audit services performed by [ ] include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of each Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by each Fund for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI attempts to deal directly with the principal market makers, except in those circumstances where IMI believes that a better price and execution are available elsewhere. IMI selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI in servicing all of its accounts. In addition, not all of these services may be used by IMI in connection with the services it provides to each Fund or the Trust. IMI may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI will not, however, execute brokerage transactions other than at the best price and execution. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Bond Fund paid brokerage commissions of $1,361, $0 and [ ], respectively. During the fiscal year ended December 31, 1999, Ivy International Strategic Bond Fund paid brokerage commissions of $[ ]. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Money Market Fund paid brokerage commission of $0, $0, and [ ], respectively. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI deems to be a desirable investment for the Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for any Fund shares with securities and may discontinue accepting securities as payment for any Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and the Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate any Fund upon written notice to shareholders. This might occur, for example, if a Fund did not reach or failed to maintain an economically viable size. The Trustees have authorized twenty-one series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund and Ivy [ ] Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund and Ivy [ ] Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting that funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of the Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to the Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Amended and Restated Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Amended and Restated Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of a Fund held personally liable for the obligations of the Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund and Ivy [ ] Fund (the other eighteen series of the Trust). (Effective April 18, 1997, Ivy International Fund suspended the offer of its shares to new investors). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to IMSC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds (except Ivy International Fund unless they have an existing Ivy International Fund account). Before effecting an exchange, shareholders of each Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. INITIAL SALES CHARGE SHARES. Class A shareholders of Ivy Bond Fund and Ivy International Strategic Bond Fund may exchange their Class A shares ("outstanding Class A shares") for Class A shares of another Ivy Fund ("new Class A Shares") on the basis of the relative net asset value per Class A share, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A shares and the sales charge payable at the time of the exchange on the new Class A shares. (The additional sales charge will be waived for Class A shares that have been invested for a period of 12 months or longer.) Class A shareholders of these Funds may also exchange their shares for shares of Ivy Money Market Fund (no initial sales charge will be assessed at the time of such an exchange). Ivy Bond Fund and Ivy International Strategic Bond Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of The Legend Group and United Planners Financial Services of America, Inc. This privilege will apply only to Class A Shares of a Fund that are purchased using all or a portion of the proceeds obtained by such clients through redemptions of shares of a mutual fund (other than one of the Funds) on which a sales charge was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer privilege must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV transfer privilege also applies to Fund shares purchased directly by clients of such dealers as long as their accounts are linked to the dealer's master account. The normal service fee, as described in the "Initial Sales Charge Alternative - Class A Shares" section of the Prospectus, will be paid to those dealers in connection with these purchases. IMDI may from time to time pay a special cash incentive to The Legend Group or United Planners Financial Services of America, Inc. in connection with sales of shares of a Fund by its registered representative under the NAV transfer privilege. Additional information on sales charge reductions or waivers may be obtained from IMDI at the address listed on the cover of this Statement of Additional Information. CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders of Ivy Bond Fund and Ivy International Strategic Bond Fund may exchange their Class A shares that are subject to a contingent deferred sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy fund ("new Class A shares") on the basis of the relative net asset value per Class A share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class A shares. Class A shareholders of a Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC period following an exchange if such period is longer than the CDSC period, if any, applicable to the new Class A shares. For purposes of computing the CDSC that may be payable upon the redemption of the new Class A shares, the holding period of the outstanding Class A shares is "tacked" onto the holding period of the new Class A shares. CLASS B: Class B shareholders of Ivy Bond Fund and Ivy International Strategic Bond Fund may exchange their Class B shares ("outstanding Class B shares") for Class B shares of another Ivy fund ("new Class B shares") on the basis of the relative net asset value per Class B share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class B shares. Class B shareholders of a Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC schedule (or period) following an exchange if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the new Class B shares. Class B shares of Ivy Bond Fund or Ivy International Strategic Bond Fund acquired through an exchange of Class B shares of another Ivy fund will be subject to that Fund's CDSC schedule (or period) if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the Ivy fund from which the exchange was made. For purposes of both the conversion feature and computing the CDSC that may be payable upon the redemption of the new Class B shares (prior to conversion), the holding period of the outstanding Class B shares is "tacked" onto the holding period of the new Class B shares. The following CDSC table applies to Class B shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund and Ivy [ ] Fund: CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OFDOLLAR AMOUNT SUBJECT TO CHARGE YEAR SINCE PURCHASE First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders of Ivy Bond Fund and Ivy International Strategic Bond Fund may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I: Subject to the restrictions set forth in the following paragraph, Class I shareholders may exchange their outstanding Class I shares for Class I shares of another Ivy fund on the basis of the relative net asset value per share. ALL CLASSES: The minimum value of shares which may be exchanged into an Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case of Class I shares). No exchange out of any Fund (other than by a complete exchange of all Fund shares) may be made if it would reduce the shareholder's interest in that Fund to less than $1,000 ($250,000 in the case of Class I shares). Each exchange will be made on the basis of the relative net asset value per share of the Ivy funds involved in the exchange next computed following receipt by IMSC of telephone instructions by IMSC or a properly executed request. Exchanges, whether written or telephonic, must be received by IMSC by the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) to receive the price computed on the day of receipt. Exchange requests received after that time will receive the price next determined following receipt of the request. The exchange privilege may be modified or terminated at any time, upon at least 60 days' notice to the extent required by applicable law. See "Redemptions." An exchange of shares between any of the Ivy funds will result in a taxable gain or loss. Generally, this will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. However, in certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on an exchange. See "Taxation." With limited exceptions, gain realized by a tax-deferred retirement plan will not be taxable to the plan and will not be taxed to the participant until distribution. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. LETTER OF INTENT Reduced sales charges apply to initial investments in Class A shares of Ivy Bond Fund and Ivy International Strategic Bond Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may be submitted by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account. See the Account Application in the Prospectus. Any investor may submit a Letter of Intent stating that he or she will invest, over a period of 13 months, at least $50,000 in Class A shares of Ivy Bond Fund or Ivy International Strategic Bond Fund. A Letter of Intent may be submitted at the time of an initial purchase of Class A shares of these Funds or within 90 days of the initial purchase, in which case the Letter of Intent will be back dated. A shareholder may include, as an accumulation credit, the value (at the applicable offering price) of all Class A shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund AND IVY US EMERGING GROWTH FUND AND IVY [ ] FUND (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy or the Trust to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of such letter before signing. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from IMSC, who may impose a charge for establishing the account. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, an eligible individual may contribute up to the lesser of $2,000 or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are both employed, and both are under age 70-1/2, each may set up his or her own IRA within these limits. If both earn at least $2,000 per year, the maximum potential contribution is $4,000 per year for both. For years after 1996, the result is similar even if one spouse has no earned income; if the joint earned income of the spouses is at least $4,000, a contribution of up to $2,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (or his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includable in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses and amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAS: Shares of each Fund also may be used as a funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $2,000 per year to a Roth IRA. The maximum contribution amount diminishes and gradually falls to zero for single filers with adjusted gross incomes ranging from $95,000 to $110,000. Married couples earning less than $150,000 combined, and filing jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum contribution amount for married couples filing jointly phases out from $150,000 to $160,000. An individual whose adjusted gross income exceeds the maximum phase-out amount cannot contribute to a Roth IRA. An eligible individual can contribute money to a traditional IRA and a Roth IRA as long as the total contribution to all IRAs does not exceed $2,000. Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA (other than the amount of nondeductible contributions) are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: reaching age 59 1/2, death, disability, deductible medical expenses, the purchase of health insurance for certain unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $30,000 or 25% of compensation or earned income to a money purchase pension plan or to a combination profit sharing and money purchase pension plan arrangement each year on behalf of each participant. To be deductible, total contributions to a profit sharing plan generally may not exceed 15% of the total compensation or earned income of all participants in the plan, and total contributions to a combination money purchase-profit sharing arrangement generally may not exceed 25% of the total compensation or earned income of all participants. The amount of compensation or earned income of any one participant that may be included in computing the deduction is limited (generally to $150,000 for benefits accruing in plan years beginning after 1993, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Custodial Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's separation from service. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay tax-deductible medical expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Trust in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from IMSC. Distributions from the 403(b)(7) Account may be made only following death, disability, separation from service, attainment of age 59-1/2, or incurring a financial hardship. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical expenses; (4) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (5) rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account. SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP accounts generally are subject to all rules applicable to IRA accounts, except the deduction limits, and are subject to certain employee participation requirements. No new salary reduction SEPs ("SARSEPs") may be established after 1996, but existing SARSEPs may continue to be maintained, and non-salary reduction SEPs may continue to be established as well as maintained after 1996. SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k) for years after 1996. An employee can make pre-tax salary reduction contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if the employer maintains or maintained any other qualified retirement plan with respect to which any contributions or benefits have been credited. REINVESTMENT PRIVILEGE Shareholders who have redeemed Class A shares of Ivy Bond Fund or Ivy International Strategic Bond Fund may reinvest all or a part of the proceeds of the redemption back into Class A shares of the same Fund at net asset value (without a sales charge) within 60 days from the date of redemption. This privilege may be exercised only once. The reinvestment will be made at the net asset value next determined after receipt by IMSC of the reinvestment order accompanied by the funds to be reinvested. No compensation will be paid to any sales personnel or dealer in connection with the transaction. Any redemption is a taxable event. A loss realized on a redemption generally may be disallowed for tax purposes if the reinvestment privilege is exercised within 30 days after the redemption. In certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on a redemption if the reinvestment privilege is exercised. See "Taxation." RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of Ivy Bond Fund or Ivy International Strategic Bond Fund. See "Initial Sales Charge Alternative -- Class A Shares" in the Prospectus. The reduced sales charge is applicable to investments made at one time by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account (including a pension, profit sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code). Rights of Accumulation are also applicable to current purchases of all of the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons enumerated above, where the aggregate quantity of Class A shares of such funds (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) and of any other investment company distributed by IMDI, previously purchased or acquired and currently owned, determined at the higher of current offering price or amount invested, plus the Class A shares being purchased, amounts to $50,000 or more for all funds other than Ivy Bond Fund; or $100,000 or more for Ivy Bond Fund. At the time an investment takes place, IMSC must be notified by the investor or his or her dealer that the investment qualifies for the reduced sales charge on the basis of previous investments. The reduced sales charge is subject to confirmation of the investor's holdings through a check of the particular fund's records. SYSTEMATIC WITHDRAWAL PLAN A shareholder (except shareholders with accounts in Class I) may establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or by delivery to IMSC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to IMSC of all share certificates then outstanding in such shareholder's name, properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisers. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each while the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal Plan is in effect may be disadvantageous to the investor because of applicable initial sales charges or CDSCs. An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to IMSC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of each Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Trust does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of a Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Trust reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Trust and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that for each twelve-month period (or portion thereof) that the account is maintained. The Trust may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Trust reserves the right to change these fees from time to time without advance notice. Class A shares of Ivy Bond Fund and Ivy International Strategic Bond Fund are made available to Merrill Lynch Daily K Plan (the "Plan") participants at NAV without an initial sales charge if: (i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets invested in broker/dealer funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are made available pursuant to a Service Agreement between Merrill Lynch and the fund's principal underwriter or distributor and in funds advised or managed by MLAM (collectively, the "Applicable Investments"); (ii) the Plan is recordkept on a daily valuation basis by an independent recordkeeper whose services are provided through a contract or alliance arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets, excluding money market funds, invested in Applicable Investments; or (iii) the Plan has 500 or more eligible employees, as determined by Merrill Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. Alternatively, Class B shares of Ivy Bond Fund and Ivy International Strategic Bond Fund are made available to Plan participants at NAV without a CDSC if the Plan conforms with the requirements for eligibility set forth in (i) through (iii) above but either does not meet the $3 million asset threshold or does not have 500 or more eligible employees. Plans recordkept on a daily basis by Merrill Lynch or an independent recordkeeper under a contract with Merrill Lynch that are currently investing in Class B shares of Ivy Bond Fund and Ivy International Strategic Bond Fund convert to Class A shares once the Plan has reached $5 million invested in Applicable Investments, or 10 years after the date of the initial purchase by a participant under the Plan--the Plan will receive a Plan level share conversion. REDEMPTIONS Shares of each Fund are redeemed at their net asset value next determined after a proper redemption request has been received by IMSC, less any applicable CDSC. Ivy Money Market Fund does not assess a contingent deferred sales charge. However, if shares of another Ivy Fund that are subject to a contingent deferred sales charge are exchanged for shares of Ivy Money Market Fund, the contingent deferred sales charge will carry over to the investment in Ivy Money Market Fund and may be assessed upon redemption. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by a Fund is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of the Funds. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1,000 in any Fund for a period of more than 12 months. All accounts below that minimum will be redeemed simultaneously when MIMI deems it advisable. The $1,000 balance will be determined by actual dollar amounts invested by the shareholder, unaffected by market fluctuations. The Trust will notify any such shareholder by certified mail of its intention to redeem such account, and the shareholder shall have 60 days from the date of such letter to invest such additional sums as shall raise the value of such account above that minimum. Should the shareholder fail to forward such sum within 60 days of the date of the Trust's letter of notification, the Trust will redeem the shares held in such account and transmit the redemption in value thereof to the shareholder. However, those shareholders who are investing pursuant to the Automatic Investment Method will not be redeemed automatically unless they have ceased making payments pursuant to the plan for a period of at least six consecutive months, and these shareholders will be given six-months' notice by the Trust before such redemption. Shareholders in a qualified retirement, pension or profit sharing plan who wish to avoid tax consequences must "rollover" any sum so redeemed into another qualified plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. Delivery of the proceeds of a wire redemption request of $250,000 or more may be delayed by each Fund for up to seven days if deemed appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. Each Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, each Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. CONVERSION OF CLASS B SHARES As described in the Prospectus, Class B shares of Ivy Bond Fund and Ivy International Strategic Bond Fund will automatically convert to Class A shares of those Funds, based on the relative net asset values per share of the two classes, no later than the month following the eighth anniversary of the initial issuance of such Class B shares of the Fund occurs. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance shall mean: (1) the date on which such Class B shares were issued, or (2) for Class B shares obtained through an exchange, or a series of exchanges, (subject to the exchange privileges for Class B shares) the date on which the original Class B shares were issued. For purposes of conversion of Class B shares, Class B shares purchased through the reinvestment of dividends and capital gain distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those shares in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through the reinvestment of dividends and capital gain distributions. NET ASSET VALUE The net asset value per share of each Fund is computed by dividing the value of the Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining the Fund's aggregate net assets, receivables are valued at their realizable amounts. Each Fund's liabilities, if not identifiable as belonging to a particular class of the Fund, are allocated among that Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in each Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. Pursuant to SEC rules, Ivy Money Market Fund's portfolio securities are valued using the amortized cost method of valuation in an effort to maintain a constant net asset value of $1.00 per share, which the Trustees have determined to be in the best interest of the Fund and its shareholders. The amortized cost method involves valuing a security at cost on the date of acquisition and thereafter assuming a constant rate of accretion of discount or amortization of premium. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. During such periods, the yield to an investor in the Fund may differ somewhat from that obtained in a similar investment company which uses available market quotations to value all of its portfolio securities. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted sale price on the exchange on which the security is principally traded. If no sale is reported at that time, the average between the last bid and asked price (the "Calculated Mean") is used. Unless otherwise noted herein, the value of a foreign security is determined in its national currency as of the normal close of trading on the foreign exchange on which it is traded or as of the close of regular trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, eastern time, on the day the value of the foreign security is determined. All other securities for which OTC market quotations are readily available are valued at the Calculated Mean. A debt security normally is valued on the basis of quotes obtained from at least two dealers (or one dealer who has made a market in the security) or pricing services that take into account appropriate valuation factors. Interest is accrued daily. Money market instruments are valued at amortized cost, which the Board believes approximates market value. An exchange-traded option is valued at the last sale price on the exchange on which it is principally traded, if available, and otherwise is valued at the last sale price on the other exchange(s). If there were no sales on any exchange, the option shall be valued at the Calculated Mean, if possible, and otherwise at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC option is valued at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of any Fund's portfolio securities occur between the time when a foreign exchange closes and the time when the Fund's net asset value is calculated (see following paragraph), such securities may be valued at fair value as determined by IMI in accordance with procedures approved by the Board. Portfolio securities are valued (and net asset value per share is determined) as of the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) on each day the Exchange is open for trading. The Exchange and the Trust's offices are expected to be closed, and net asset value will not be calculated, on the following national business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days when either or both of the Fund's Custodian or the Exchange close early as a result of a partial holiday or otherwise, the Trust reserves the right to advance the time on that day by which purchase and redemption requests must be received. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on each Fund's net asset value next determined after your instructions are received in proper form by IMSC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since each Fund invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, each Fund's net asset value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. The sale of each Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in a Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to each Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax adviser about the tax consequences to them of investing in any Fund. The Funds are not managed for tax efficiency. Each Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, each Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies). As a regulated investment company, each Fund generally will not be subject to U.S. Federal income tax on its income and gains that it distributes to shareholders, if at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and the excess of any short-term capital gains over long-term capital losses) for the taxable year is distributed. Each Fund intends to distribute all such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each Fund must distribute during each calendar year, (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirements. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December of the year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year the distributions are declared, rather than the calendar year in which the distributions are received. OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS The taxation of equity options and OTC options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by a Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to that Fund. If a Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by a Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by a Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Some of the options, futures and foreign currency forward contracts in which a Fund may invest may be "section 1256 contracts." Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; however, as described below, foreign currency gains or losses arising from certain section 1256 contracts are ordinary in character. Also, section 1256 contracts held by each Fund at the end of each taxable year (and on certain other dates prescribed in the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. The transactions in options, futures and forward contracts undertaken by the Funds may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains or losses realized by each Fund. In addition, losses realized by a Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to each Fund are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by the Funds, which is taxed as ordinary income when distributed to shareholders. A Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a fund that did not engage in such transactions. Notwithstanding any of the foregoing, each Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of each Fund's taxable year, if certain conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time each Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of a Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES Ivy Bond Fund and Ivy International Strategic Bond Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If a Fund receives a so-called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which a Fund held the PFIC shares. The Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. Each Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. A Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, a Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by a Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. Each Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by a Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, a Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Each Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. Each Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by the Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by the Fund. DISTRIBUTIONS Distributions of investment company taxable income are taxable to a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends paid by a Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received from U.S. corporations by the Fund, may qualify for the dividends received deduction. However, the revised alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by a Fund as capital gain dividends, are taxable to shareholders as long-term capital gains whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares; such distributions are not eligible for the dividends received deduction. Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the net asset value of a share of a Fund on the distribution date. A distribution of an amount in excess of any Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Shareholders will be notified annually as to the U.S. Federal tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the net asset value of the shares received. If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Shareholders should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. DISPOSITION OF SHARES Upon a redemption, sale or exchange of his or her shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and, if so, will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss realized on a redemption sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having been received by the shareholder with respect to such shares. In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of a Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by any Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of a Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible and may elect to "pass-through" to the Fund's shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of each Fund's taxable year whether the foreign taxes paid by that Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if a Fund makes the election described in the preceding paragraph, the source of the Fund's income flows through to its shareholders. With respect to each Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from a Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of a Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if a Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers. BACKUP WITHHOLDING Each Fund will be required to report to the Internal Revenue Service ("IRS") all taxable distributions as well as gross proceeds from the redemption of the Fund's shares, except in the case of certain exempt shareholders. All such distributions and proceeds will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1) the shareholder fails to furnish the Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amounts required to be withheld. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. This discussion does not purport to deal with all of the tax consequences applicable to each Fund or its shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in any Fund. PERFORMANCE INFORMATION Performance information for the classes of shares of Ivy Bond Fund and Ivy International Strategic Bond Fund may be compared, in reports and promotional literature, to: (i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors may compare the Funds' results with those of a group of unmanaged securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, a widely used independent research firm that ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in each Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. Performance rankings are based on historical information and are not intended to indicate future performance. YIELD IVY MONEY MARKET FUND Ivy Money Market Fund's yield quotations as they may appear in the Prospectus, this SAI, advertising or sales literature are calculated by standard methods prescribed by the SEC. STANDARDIZED YIELD QUOTATIONS. Ivy Money Market Fund's current yield quotation is computed by determining the net change, exclusive of capital changes (i.e., realized gains and losses from the sale of securities and unrealized appreciation and depreciation) and income other than investment income, in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the base period, subtracting a hypothetical charge reflecting expense deductions from the hypothetical account, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return. This base period return is then multiplied by 365/7 with the resulting yield figure carried to the nearest 100th of 1%. The determination of net change in account value reflects the value of additional shares purchased with dividends from the original share, dividends declared on both the original share and any such additional shares, and all fees, other than non-recurring account or sales charges, that are charged to all shareholder accounts in the Fund in proportion to the length of the base period. For any account fees that vary with the size of the account in the Fund, the account fee used for purposes of the yield computation is assumed to be the fee that would be charged to the mean account size of the Fund. The distribution rate will differ from the current yield computation because it may include distributions to shareholders from sources other than dividends and interest, short-term capital gains and net equalization credits. Ivy Money Market Fund's current yield for the seven-day period ended December 31, 1999 was [ ]%. IMI currently reimburses the Fund to limit ordinary operating expenses to 0.85% of average net assets. Without reimbursement, the Fund's current yield for this period would have been [ ]%. IVY BOND FUND AND IVY INTERNATIONAL STRATEGIC BOND FUND Quotations of yield for a specific class of shares of the Fund will be based on all investment income attributable to that class earned during a particular 30-day (or one month) period (including dividends and interest), less expenses attributable to that class accrued during the period ("net investment income"), and will be computed by dividing the net investment income per share of that class earned during the period by the maximum offering price per share (in the case of Class A shares) or the net asset value per share (in the case of Class B and Class C shares) on the last day of the period, according to the following formula: YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1] Where: a = dividends and interest earned during the period attributable to a specific class of shares, b = expenses accrued for the period attributable to that class (net of reimbursements), c = the average daily number of shares of that class outstanding during the period that were entitled to receive dividends, and d = the maximum offering price per share (in the case of Class A shares) or the net asset value per share (in the case of Class B shares, Class C shares and Class I shares) on the last day of the period. The yields for Class A, Class B, and Class C shares of Ivy Bond Fund for the 30-day period ended December 31, 1999 were [ ]%, [ ]%, and [ ]%, respectively. [There were no Class I shares outstanding as of December 31, 1999]. The yields for Class A, Class B, and Class C shares of Ivy International Strategic Bond Fund for the 30-day period ended December 31, 1999 were [ ]%, [ ]%, and [ ]%, respectively. [There were no Class I shares outstanding as of December 31, 1999]. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of Ivy Bond Fund and Ivy International Strategic Bond Fund will be expressed in terms of the average annual compounded rate of return that would cause a hypothetical investment in that class of each Fund made on the first day of a designated period to equal the ending redeemable value ("ERV") of such hypothetical investment on the last day of the designated period, according to the following formula: P(1 + T){superscript n} = ERV Where: P = a hypothetical initial payment of $1,000 to purchase shares of a specific class T = the average annual total return of shares of that class n = the number of years ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. For purposes of the above computation for each Fund, it is assumed that all dividends and capital gains distributions made by that Fund are reinvested at net asset value in additional shares of the same class during the designated period. In calculating the ending redeemable value for Class A shares and assuming complete redemption at the end of the applicable period, the maximum 4.75% sales charge for Ivy Bond Fund, or 5.75% sales charge for Ivy International Strategic Bond Fund, is deducted from the initial $1,000 payment and, for Class B and Class C shares, the applicable CDSC imposed upon redemption of Class B or Class C shares held for the period is deducted. Standardized Return quotations for each Fund do not take into account any required payments for federal or state income taxes. Standardized Return quotations for Class B shares for periods of over eight years will reflect conversion of the Class B shares to Class A shares at the end of the eighth year. Standardized Return quotations are determined to the nearest 1/100 of 1%. Each Fund may, from time to time, include in advertisements, promotional literature or reports to shareholders or prospective investors total return data that are not calculated according to the formula set forth above ("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in calculating Non-Standardized Return; a sales charge, if deducted, would reduce the return. The following tables summarize the calculation of Standardized and Non-Standardized Return for the Class A, Class B, Class C, and Class I shares of Ivy Bond Fund and Ivy International Strategic Bond Fund for the periods indicated. In determining the average annual total return for a specific class of shares of each Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of a Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of that Fund. STANDARDIZED RETURN FOR IVY BOND FUND[*] CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] One year ended December 31, 1999 Five years ended December 31, 1999 Ten years ended December 31, 1999 Inception [#] to year ended December 31, 1999 [8]: NON-STANDARDIZED RETURN FOR IVY BOND FUND[**] CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Year ended December 31, 1999 Five years ended December 31, 1999 Ten years ended December 31, 1999 Inception [#] to year ended December 31, 1999 [8]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of [ ]%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on a redemption of Class B or C shares held for the period. Class I shares are not subject to an initial or a CDSC; therefore, the Non-Standardized Return figures would be identical to the Standardized Return figures. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] Until December 31, 1994, MIMI served as investment adviser to Ivy Bond Fund, which until that date was a series of Mackenzie Series Trust. The inception date for the Fund (and the Class A shares of the Fund) was September 6, 1985; the inception date for the Class B and Class I shares of the Fund was April 1, 1994; and the inception date for the Class C shares of the Fund was April 30, 1996. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], [ ], [ ], and [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year and five year periods ended December 31, 1999 would have been [ ] and [ ], respectively. (Since the inception date for Class B shares of the Fund was April 1, 1994, there were no Class B shares outstanding for the duration of the ten year period ending December 31, 1999.) [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year and five year ended December 31, 1999 would have been [ ] and [ ], respectively. (Since the inception date for Class C shares of the Fund was April 30, 1996, there were no Class C shares outstanding for the duration of the ten year periods ending December 31, 1999.) [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], [ ], [ ], and [ ], respectively. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one year and five year periods ended December 31, 1999 would have been [ ] and [ ], respectively. (Since the inception date for Class B shares of the Fund was April 1, 1994, there were no Class B shares outstanding for the duration of the ten year periods ending December 31, 1999.) [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year ending December 31, 1999 would have been [ ] and [ ], respectively. (Since the inception date for Class C shares of the Fund was April 30, 1996, there were no Class C shares outstanding for the duration of the five year or ten year periods ending December 31, 1999.) [7] No Class I shares were outstanding during the time periods indicated. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. STANDARDIZED RETURN FOR IVY INTERNATIONAL STRATEGIC BOND FUND[*] CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] Inception [#] to year ended December 31, 1999 [8]: NON-STANDARDIZED RETURN FOR IVY INTERNATIONAL STRATEGIC BOND FUND[**] CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Inception [#] to year ended December 31, 1999 [8]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 4.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on a redemption of Class B or C shares held for the period. Class I shares are not subject to an initial or a CDSC; therefore, the Non-Standardized Return figures would be identical to the Standardized Return figures. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for Ivy International Strategic Bond Fund was May 3, 1999. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 would have been [ ]. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 would have been [ ]. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 would have been [ ]. [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 would have been [ ]. [5] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 would have been [ ]. [6] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 would have been [ ]. [7] No Class I shares were outstanding during the time periods indicated. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of Ivy Bond Fund or Ivy International Strategic Bond Fund for a specified period. Cumulative total return quotations reflect changes in the price of a Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in the Fund's shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of a Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. IVY BOND FUND The following table summarizes the calculation of Cumulative Total Return for Ivy Bond Fund for the periods indicated through December 31, 1999, assuming the maximum 4.75% sales charge has been assessed. SINCE INCEPTION[*] ONE YEAR FIVE YEARS TEN YEARS Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for Ivy Bond Fund for the periods indicated through December 31, 1999, assuming the maximum 4.75% sales charge has not been assessed. SINCE INCEPTION[*] ONE YEAR FIVE YEARS TEN YEARS Class A Class B Class C Class I [*] Until December 31, 1994, MIMI served as investment adviser to Ivy Bond Fund, which until that date was a series of Mackenzie Series Trust. The inception date for Ivy Bond Fund (Class A shares) was September 6, 1985; the inception date for the Class B and Class I shares of the Fund was April 1, 1994. The inception date for Class C shares of the Fund was April 30, 1996. IVY INTERNATIONAL STRATEGIC BOND FUND The following table summarizes the calculation of Cumulative Total Return for Ivy International Strategic Bond Fund for the periods indicated through December 31, 1999, assuming the maximum 4.75% sales charge has been assessed. SINCE INCEPTION[*] Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for Ivy International Strategic Bond Fund for the periods indicated through December 31, 1999, assuming the maximum 4.75% sales charge has not been assessed. SINCE INCEPTION[*] Class A Class B Class C Class I - --------------------------- [*] The inception date for Ivy International Strategic Bond Fund was May 3, 1999. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of the Fund's portfolio and operating expenses of each Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding a Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of each Fund's shares and the risks associated with each Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. Each Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS Each Fund's portfolio of investments as of December 31, 1999, Statement of Assets and Liabilities as of December 31, 1999, Statement of Operations for the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for the fiscal year ended December 31, 1999, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in each Fund's December 31, 1999 Annual Report to shareholders, are incorporated by reference into this SAI. APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New York, 1997).] MOODY'S: (a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality, carrying the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa are judged by Moody's to be of high quality by all standards. Aa bonds are rated lower than Aaa bonds because margins of protection may not be as large as those of Aaa bonds, or fluctuations of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than those applicable to Aaa securities. Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa by Moody's are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. (b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Issuers within this Prime category may be given ratings 1, 2 or 3, depending on the relative strengths of these factors. The designation of Prime-1 indicates the highest quality repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have a strong ability for repayment while issuers voted Prime-3 are deemed to have an acceptable ability for repayment. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings described below may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA is judged by S&P to have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A by S&P has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to pay interest and repay principal. Although such bonds normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than debt in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. The commercial paper rating A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. For commercial paper with an A-2 rating, the capacity for timely payment on issues is satisfactory, but not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment, but are more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. The C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. IVY BOND FUND IVY INTERNATIONAL STRATEGIC BOND FUND series of IVY FUND Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION ADVISOR CLASS SHARES May 1, 2000 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of twenty-one fully managed portfolios, each of which (except for Ivy South America Fund and Ivy International Strategic Bond Fund) is diversified. This Statement of Additional Information ("SAI") relates to the Advisor Class shares of Ivy Bond Fund and Ivy International Strategic Bond Fund (each a "Fund"). The other nineteen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Advisor Class Shares of the Funds dated May 1, 2000 (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. Advisor Class shares are only offered to certain investors (see the Prospectus.) The Funds also offer Class A, B, C and I shares, which are described in a separate prospectus and SAI that may also be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS GENERAL INFORMATION...........................................................4 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS...................................4 IVY BOND FUND........................................................4 INVESTMENT RESTRICTIONS FOR IVY BOND FUND............................5 IVY INTERNATIONAL STRATEGIC BOND FUND................................8 INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND........................................................10 COMMON STOCKS.......................................................12 CONVERTIBLE SECURITIES..............................................12 DEBT SECURITIES.....................................................13 ILLIQUID SECURITIES.................................................17 FOREIGN SECURITIES..................................................18 DEPOSITORY RECEIPTS.................................................19 EMERGING MARKETS....................................................19 FOREIGN SOVEREIGN DEBT OBLIGATIONS..................................20 BRADY BONDS.........................................................21 LOAN PARTICIPATIONS AND ASSIGNMENTS.................................21 FOREIGN CURRENCIES..................................................22 FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................23 REPURCHASE AGREEMENTS...............................................24 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................24 COMMERCIAL PAPER....................................................25 BORROWING...........................................................25 SHORT SALES.........................................................25 OPTIONS TRANSACTIONS................................................26 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................30 SECURITIES INDEX FUTURES CONTRACTS..................................35 PORTFOLIO TURNOVER...........................................................37 TRUSTEES AND OFFICERS........................................................37 INVESTMENT ADVISORY AND OTHER SERVICES.......................................50 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................50 DISTRIBUTION SERVICES...............................................52 CUSTODIAN...........................................................53 FUND ACCOUNTING SERVICES............................................53 TRANSFER AGENT AND DIVIDEND PAYING AGENT............................54 ADMINISTRATOR.......................................................54 AUDITORS............................................................54 BROKERAGE ALLOCATION.........................................................54 CAPITALIZATION AND VOTING RIGHTS.............................................55 SPECIAL RIGHTS AND PRIVILEGES................................................57 AUTOMATIC INVESTMENT METHOD.........................................57 EXCHANGE OF SHARES..................................................58 RETIREMENT PLANS....................................................58 SYSTEMATIC WITHDRAWAL PLAN..........................................62 GROUP SYSTEMATIC INVESTMENT PROGRAM.................................63 REDEMPTIONS..................................................................63 NET ASSET VALUE..............................................................64 TAXATION 66 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............67 DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................69 DISTRIBUTIONS.......................................................70 DISPOSITION OF SHARES...............................................70 FOREIGN WITHHOLDING TAXES...........................................71 BACKUP WITHHOLDING..................................................72 PERFORMANCE INFORMATION......................................................72 YIELD...............................................................73 FINANCIAL STATEMENTS.........................................................75 APPENDIX A...................................................................76 GENERAL INFORMATION Ivy Bond Fund is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. Ivy International Strategic Bond Fund is organized as a separate, non-diversified portfolio of the Trust. Ivy Bond Fund commenced operations (Class A shares) on September 6, 1985. Advisor Class shares were first offered on January 1, 1998. Ivy International Strategic Bond Fund commenced operations (all classes) on May 3, 1999. Descriptions in this SAI of a particular investment practice or technique in which a Fund may engage or a financial instrument which a Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing the Funds' portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in a Fund's overall investment strategy, from time to time have a material impact on a Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, is set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund's asset level or other circumstances beyond a Fund's control, will not be considered a violation. IVY BOND FUND The Fund seeks a high level of current income by investing primarily in (i) investment grade corporate bonds (those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's Ratings Services ("S&P"), or, if unrated, considered by IMI to be of comparable quality) and (ii) U.S. Government securities (including mortgage-backed securities issued by U.S. Government agencies or instrumentalities) that mature in more than 13 months. As a fundamental policy, the Fund normally invests at least 65% of its total assets in these fixed income securities. For temporary defensive purposes, the Fund may invest without limit in U.S. Government securities maturing in 13 months or less, certificates of deposit, bankers' acceptances, commercial paper and repurchase agreements. The Fund may also invest up to 35% of its total assets in such money market securities in order to meet redemptions or to maximize income to the Fund while it is arranging longer-term investments. The Fund may invest up to 35% of its net assets in corporate debt securities, including zero coupon bonds (subject to the restrictions set forth below), rated Ba or below by Moody's or BB or below by S&P, or, if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. See Appendix A for a description of Moody's and S&P's corporate bond ratings. The Fund may invest up to 5% of its net assets in dividend-paying common and preferred stocks (including adjustable rate preferred stocks and securities convertible into common stocks), municipal bonds, zero coupon bonds, and securities sold on a "when-issued" or firm commitment basis. As a temporary measure for extraordinary or emergency purposes, the Fund may borrow from banks up to 10% of the value of its total assets. The Fund may invest up to 20% of its net assets in debt securities of foreign issuers, including non-U.S. dollar-denominated debt securities, American Depository Receipts ("ADRs"), Global Depository ("GDRs"), American Depository Shares ("ADSs") and Global Depository Shares ("GDSs"), Eurodollar securities and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. The Fund may also enter into forward foreign currency contracts, but not for speculative purposes. The Fund may not invest more than 15% of the value of its net assets in illiquid securities. The Fund may purchase put and call options, provided the premium paid for such options does not exceed 10% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 50% of the value of its net assets, and may write covered call options so long as not more than 20% of the Fund's net assets in subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in interest rate futures contracts, currency futures contracts and options on interest rate futures and currency futures contracts. INVESTMENT RESTRICTIONS FOR IVY BOND FUND The Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus or this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS The Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (ii) purchase or sell real estate limited partnership interests; (iii) purchase or retain securities of any company if officers and Trustees of the Trust and officers and directors of Ivy Management, Inc. (the Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial Corporation who individually own more than 1/2 of 1% of the securities of that company together own beneficially more than 5% of such securities; (iv) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (v) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) make investments in securities for the purpose of exercising control over or management of the issuer; (vii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions. The deposit or payment by the Fund of initial or variation margin in connection with futures contracts or relate options transactions is not considered the purchase of a security on margin; (viii) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for extraordinary or emergency purposes; (ix) mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund (except as may be necessary in connection with permitted borrowings and then not in excess of 20% of the Fund's total assets); provided, however, this does not prohibit escrow, collateral or margin arrangements in connection with its use of options, short sales, futures contracts and options on future contracts; (x) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund -- or of the Fund and of other accounts under the investment management of the persons rendering investment advice to the Fund -- for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; or (xi) make short sales of securities or maintain a short position IVY INTERNATIONAL STRATEGIC BOND FUND The Fund is a non-diversified company whose investment objectives are to seek total return by investing primarily in the debt securities of foreign issuers and, consistent with that objective, to maximize current income. The Fund will seek to achieve its investment objectives primarily through investment in debt securities issued by foreign governments, government-related entities and corporations. IMI will endeavor to achieve the Fund's investment objectives through active management of country, sector and currency exposure. The Fund seeks to achieve its objectives by investing primarily in a managed portfolio of high quality bonds denominated in foreign currencies. At least 65% of the Fund's total assets will normally be invested in bonds of foreign issuers. In selecting bonds for the Fund's portfolio, IMI will consider various factors, including yields, credit quality and the fundamental outlook for currency and interest rate trends in different parts of the world. IMI may also take into account the ability to hedge currency and local bond price risk. To be considered a high quality bond in which the Fund primarily invests, a bond must be rated at least BBB or better by S&P or Baa by Moody's or, if the bond is unrated, it must be considered by IMI to be of comparable quality in local currency terms. The Fund may invest less than 35% of its net assets in debt securities rated Ba or below by Moody's and/or BB or below by S&P or, if unrated, considered by IMI to be of comparable quality. The Fund will not invest in debt securities that, at the time of investment, are rated less than C by either Moody's or S&P. The Fund's investments may include: debt securities issued or guaranteed by a foreign national government, its agencies, instrumentalities or political subdivisions; debt securities issued or guaranteed by supranational organizations (e.g., European Investment Bank, Inter-American Development Bank or the World Bank); corporate debt securities; bank or bank holding company debt securities; and other debt securities, including those convertible into common stock. The Fund may also invest in zero coupon securities which do not provide for the periodic payment of interest and are sold at significant discount from face value. The Fund may also purchase securities which are not publicly offered and may be subject to regulations applicable to restricted securities. The Fund may invest in fixed- and floating-rate issues such as loan participations and loan assignments. In addition, the Fund may purchase Brady Bonds and other sovereign debt of countries that have restructured or are in the process of restructuring their sovereign debt. The Fund intends to diversify among several countries and market sectors, and to have represented, in substantial proportions, debt exposure in not less than three different countries other than the United States. Under normal circumstances, the Fund will invest no more than 35% of the value of its total assets in the debt securities of U.S. issuers. The Fund may engage in the use of options, futures, forward foreign currency contracts and other derivatives transactions, as described below, for hedging purposes, to seek to enhance potential gain, or as substitutes for direct debt holdings. The Fund may also engage in short sales of securities as a hedge for related securities whose liquidity may be insufficient to render it cost effective to sell and repurchase such securities (e.g., hedging a less liquid security of a corporate emerging markets issuer by selling short the larger, more liquid issue of a sovereign entity). The Fund may invest without limit in U.S. debt securities, including short-term money market securities, for temporary defensive or emergency purposes. It is not possible to predict the extent to which the Fund might employ such optional strategies. To protect against adverse movements of interest rates and for purposes of liquidity, the Fund may also purchase short-term obligations denominated in U.S. and foreign currencies such as, but not limited to, bank deposits, bankers' acceptances, certificates of deposit, commercial paper, short-term government, government agency, supranational agency and corporate obligations, and repurchase agreements. The Fund can use various techniques to increase or decrease its exposure to changing security prices, interest rates, currency exchange rates, commodity prices, or other factors that affect security values. These techniques may involve derivative transactions such as buying and selling options and futures contracts, entering into currency exchange, interest rate and other financial futures contracts and related options, and purchasing indexed securities. IMI can, in its discretion, use these practices to attempt to adjust the risk and return characteristics of the Fund's portfolio of investments. If IMI judges market conditions incorrectly or employs a strategy that does not correlate well with the Fund's investments, these techniques could result in a loss, regardless of whether the intent was to reduce risk or increase return. These techniques may increase the volatility of the Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques could result in a loss if the counterparty to the transaction does not perform as promised. The Fund may enter into repurchase agreements with selected banks and broker/dealers. Under a repurchase agreement, the Fund acquires securities, subject to the seller's agreement to repurchase at a specified time and price. The Fund may purchase securities on a when-issued or forward delivery basis, for payment and delivery at a later date. The price and yield generally are fixed on the date of commitment to purchase. From the time of purchase until settlement, no interest accrues to the Fund. At the time of settlement, the market value of the security may differ from the purchase price. The higher yields and high income sought by the Fund may be obtainable from high yield, higher risk securities in the lower rating categories of the established rating services. These securities are rated Ba or lower by Moody's or BB or lower by S&P. The Fund may invest in securities rated as low as C by Moody's or S&P, which may indicate that the obligations are speculative to a high degree and often in default. Securities rated lower than Baa or BBB (and comparable unrated securities) are commonly referred to as "high yield" or "junk" bonds and are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the Fund's best interest to retain or dispose of the security. However, should any individual bond held by the Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics. The Fund may not borrow money in excess of 20% of its total assets, except as a temporary measure for extraordinary or emergency purposes or except in connection with reverse repurchase agreements. In addition, as a matter of non-fundamental policy, the Fund may not invest more than 15% of its net assets in illiquid securities. These instruments may be difficult to sell promptly at an acceptable price, and the sale of certain of these instruments may be subject to legal restrictions. Difficulty in selling these instruments may result in a loss or may be costly to the Fund. A description of these and other policies and restrictions is contained under "Investment Restrictions" below. The Fund's investment objectives are fundamental and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. Except for the Fund's investment objectives and those investment restrictions specifically identified as fundamental, all investment policies and practices described in the Prospectus and in this SAI are non-fundamental, and may be changed by the Board of Trustees without shareholder approval. There can be no assurance that the Fund's objectives will be met. The different types of securities and investment techniques used by the Fund involve varying degrees of risk. For information about the particular risks associated with each type of investment, see the descriptions of risk factors below, and the "Risk Factors and Investment Techniques" section of the Prospectus. INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND The Fund's investment objectives as set forth in the Prospectus under "Investment Objectives and Policies," together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed with respect to the Fund without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (ii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (iv) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (v) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vi) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (vii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS The Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market or to other factors, is liquid; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that the Fund may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) make investments in securities for the purpose of exercising control or management of the issuer. (vi) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund--or of the Fund and of other accounts under the investment management of the persons rendering investment advice to the Fund--for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (vii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions; the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin; (viii) borrow amounts in excess of 20% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for extraordinary or emergency purposes or except in connection with reverse repurchase agreements, provided that the Fund maintains net asset coverage of at least 300% for all borrowings; and (ix) mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund (except as may be necessary in connection with permitted borrowings and then not in excess of 20% of the Fund's total assets); provided, however, this does not prohibit escrow, collateral or margin arrangements in connection with its use of options, short sales, futures contracts and options on future contracts. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which a Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stock changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock, although typically not as much as the price of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. DEBT SECURITIES IN GENERAL. Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). A Fund may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or BBB by S&P, and comparable unrated securities (commonly referred to as "high yield" or "junk" bonds), including many emerging markets bonds, are considered to be predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The lower the ratings of corporate debt securities, the more their risks render them like equity securities. Such securities carry a high degree of risk (including the possibility of default or bankruptcy of the issuers of such securities), and generally involve greater volatility of price and risk of principal and income (and may be less liquid) than securities in the higher rating categories. (See Appendix A for a more complete description of the ratings assigned by Moody's and S&P and their respective characteristics.) Lower rated and unrated securities are especially subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. During an economic downturn or period of rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to service their principal and interest payment obligations. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. Changes in interest rates may have a less direct or dominant impact on high yield bonds than on higher quality issues of similar maturities. However, the price of high yield bonds can change significantly or suddenly due to a host of factors including changes in interest rates, fundamental credit quality, market psychology, government regulations, U.S. economic growth and, at times, stock market activity. High yield bonds may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, a Fund may have to replace the security with a lower yielding security. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market or because of a decline in the value of such securities. A thin trading market may limit the ability of a Fund to accurately value high yield securities in the Fund's portfolio, could adversely affect the price at which the Fund could sell such securities, and cause large fluctuations in the daily net asset value of the Fund's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of low-rated debt securities, especially in a thinly traded market. When secondary markets for high yield securities become relatively less liquid, it may be more difficult to value the securities, requiring additional research and elements of judgment. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high yield securities market can change suddenly and unexpectedly, and even recently issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. For these reasons, it is the policy of IMI not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of a Fund's investment objectives by investment in such securities may be more dependent on IMI's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, IMI will determine whether it is in the best interest of each Fund to retain or dispose of such security. However, should any individual bond held by any Fund be downgraded below a rating of C, IMI currently intends to dispose of such bond based on then existing market conditions. Prices for high yield securities may be affected by legislative and regulatory developments. For example, Federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, Congress has from time to time considered legislation that would restrict or eliminate the corporate tax deduction for interest payments in these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayments, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain Federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association, and Student Loan Marketing Association. MUNICIPAL SECURITIES. Municipal securities are debt obligations that generally have a maturity at the time of issue in excess of one year and are issued to obtain funds for various public purposes. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities, or, in some cases, from the proceeds of a special excise of a specific revenue source. Industrial development bonds or private activity bonds are issued by or on behalf of public authorities to obtain funds for privately-operated facilities and are in most cases revenue bonds that generally do not carry the pledge of the full faith and credit of the issuer of such bonds, but depend for payment on the ability of the industrial user to meet its obligations (or on any property pledged as security). The market prices of municipal securities, like those of taxable debt securities, go up and down when interest rates change. Thus, the net asset value per share can be expected to fluctuate and shareholders may receive more or less than their purchase price for shares they redeem. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If a Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in a Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to each Fund on a current basis, but is in effect compounded, the value of the securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of certain debt securities are often offered on a "when-issued" basis, meaning the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the date of the commitment to purchase. Firm commitment agreements call for the purchase of securities at an agreed-upon price on a specified future date. A Fund may use such investment techniques in order to secure what is considered to be an advantageous price and yield to the Fund and not for purposes of leveraging such Fund's assets. In either instance, each Fund will maintain in a segregated account with its Custodian cash or liquid securities equal (on a daily market-to-market basis) to the amount of its commitment to purchase the underlying securities. ILLIQUID SECURITIES The Funds may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of a Fund. It is the policy of each Fund that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between a Fund's decision to sell a restricted or illiquid security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, a Fund may be required to bear all or part of the registration expenses. A Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which each Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares ("GDSs") and related depository instruments, and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in the Fund's domestic investments. Although IMI intends to invest each Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which each Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, each Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. It may be more difficult for each Fund's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the United States and foreign countries may be less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. IMI seeks to mitigate the risks to each Fund associated with the foregoing considerations through investment variation and continuous professional management. DEPOSITORY RECEIPTS ADRs, GDRs, ADSs, GDSs and related securities are depository instruments, the issuance of which is typically administered by a U.S. or foreign bank or trust company. These instruments evidence ownership of underlying securities issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges or over-the-counter ("OTC") in the United States. Unsponsored programs are organized independently and without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. EMERGING MARKETS Each Fund could have significant investments in securities traded in emerging markets. Investors should recognize that investing in such countries involves special considerations, in addition to those set forth above, that are not typically associated with investing in United States securities and that may affect each Fund's performance favorably or unfavorably. In recent years, many emerging market countries around the world have undergone political changes that have reduced government's role in economic and personal affairs and have stimulated investment and growth. Historically, there is a strong direct correlation between economic growth and stock market returns. While this is no guarantee of future performance, IMI believes that investment opportunities (particularly in the energy, environmental services, natural resources, basic materials, power, telecommunications and transportation industries) may result within the evolving economies of emerging market countries from which each Fund and its shareholders will benefit. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. Such risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies that may restrict each Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until relatively recently in certain Eastern European countries, of a capital market structure or market-oriented economy; (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries; and (viii) the possibility that currency devaluations could adversely affect the value of each Fund's investments. Further, many emerging markets have experienced and continue to experience high rates of inflation. Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, a Fund could lose a substantial portion of any investments it has made in the affected countries. Further, few (if any) accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial in relation to the actual market values and may be adverse to each Fund's net asset value. Certain Eastern European countries that do not have well-established trading markets are characterized by an absence of developed legal structures governing private and foreign investments and private property. In addition, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of each Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of each Fund's cash and securities, each Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. FOREIGN SOVEREIGN DEBT OBLIGATIONS Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service it debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt (including the Funds) may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part. BRADY BONDS Ivy International Strategic Bond Fund may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the `Brady Plan"). Brady Plan debt restructurings have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela. Brady Bonds have been issued only recently, and for that reason do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (but primarily the U.S. dollar) and are actively traded in over-the-counter secondary markets. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least one year's rolling interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. Brady Bonds are often viewed as having three or four valuation components: the collateralized repayment of principal at final maturity; the collateralized interest payments; the uncollateralized interest payments; and any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk"). In light of the residual risk of Brady Bonds and the history of defaults of countries issuing Brady Bonds, with respect to commercial bank loans by public and private entities, investments in Brady Bonds may be viewed as speculative. LOAN PARTICIPATIONS AND ASSIGNMENTS Ivy International Strategic Bond Fund may invest in fixed- and floating-rate loans ("Loans") arranged through private negotiations between an issuer of emerging market debt instruments and one or more financial institutions ("Lenders"). The Fund's investments in Loans are expected in most instances to be in the form of participations in Loans ("Participations") and assignments of portions of Loans ("Assignments") from third parties. Participations typically will result in the Fund having a contractual relationship only with the Lender and not with the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund will assume the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the Lender selling a Participation, the Fund may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. The Fund will acquire Participations only if the Lender interpositioned between the Fund and the borrower is determined by the Adviser to be creditworthy. When the Fund purchases Assignments from Lenders, it will acquire direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, however, the rights and obligations acquired by the Fund as the purchaser of an Assignment may differ from, and may be more limited than, those held by the assigning Lender. The Fund may have difficulty disposing of Assignments and Participation. Because no liquid market for these obligations typically exists, the Fund anticipates that these obligations could be sold only to a limited number of institutional investors. The lack of a liquid secondary market will have an adverse effect on the Fund's ability to dispose of particular Assignments or Participations when necessary to meet the Fund's liquidity needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for Assignments and Participations may also make it more difficult for the Fund to assign a value to those securities for purposes of valuing the Fund's portfolio and calculating its net asset value. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, each Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs and may purchase forward foreign currency contracts. Because of these factors, the value of the assets of each of these Funds as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and each Fund may incur costs in connection with conversions between various currencies. Although each Fund's custodian values the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. Each Fund will do so from time to time, however, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Each Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. Because each Fund normally will be invested in both U.S. and foreign securities markets, changes in each Fund's share price may have a low correlation with movements in U.S. markets. Each Fund's share price will reflect the movements of the different stock and bond markets in which it is invested (both U.S. and foreign), and of the currencies in which the investments are denominated. Thus, the strength or weakness of the U.S. dollar against foreign currencies may account for part of each Fund's investment performance. U.S. and foreign securities markets do not always move in step with each other, and the total returns from different markets may vary significantly. Currencies in which each Fund's assets are denominated may be devalued against the U.S. dollar, resulting in a loss to a Fund. FOREIGN CURRENCY EXCHANGE TRANSACTIONS Each Fund may enter into forward foreign currency contracts in order to protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date (usually less than a year), and typically is individually negotiated and privately traded by currency traders and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for commissions, they do realize a profit based on the difference between the price at which they are buying and selling various currencies. Although these contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. While the Funds may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for each of these Funds than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Fund from achieving the intended hedge or expose a Fund to the risk of currency exchange loss. The Funds may purchase currency forwards and combine such purchases with sufficient cash or short-term securities to create unleveraged substitutes for investments in foreign markets when deemed advantageous. Each Fund may also combine the foregoing with bond futures or interest rate futures contracts to create the economic equivalent of an unhedged foreign bond position. The Funds may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which each Fund has or in which each Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to a Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which a Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, each Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. Each Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, a Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, each Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. Each Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by a Fund. Each Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER. Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. Each Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on a Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of each Fund's borrowings will be fixed, a Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. SHORT SALES Ivy International Strategic Bond Fund may engage in short sale transactions in fixed-income securities. Short selling involves the sale of borrowed securities. At the time a short sale is effected, the Fund incurs an obligation to replace the security borrowed at whatever its price may be at the time that the Fund purchases it for delivery to the lender. When a short sale transaction is closed out by delivery of the securities, any gain or loss on the transaction is taxable as a short-term capital gain or loss. Until the security is replaced, the Fund is required to pay to the lender amounts equal to any dividends or interest which accrue during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. Until the Fund replaces a borrowed security in connection with a short sale, the Fund will: (a) maintain daily a segregated account containing cash or liquid securities, at such level that (i) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will equal the current value of the security sold short and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time it was sold short; or (b) otherwise cover its short position. Since short selling can result in profits when bond prices generally decline, Ivy International Strategic Bond Fund in this manner, can, to a certain extent, hedge the market risk to the value of its other investments and protect its equity in a declining market. However, the Fund could, at any given time, suffer both a loss on the purchase or retention of one security, if that security should decline in value, and a loss on a short sale of another security, if the security sold short should increase in value. If the Fund sells short one security to hedge a position in a similar security, the Fund could experience a loss due to an increase in the price of the security sold short resulting from an incorrectly perceived correlation between the two securities or a correlation not present at the time of the short sale transaction. Moreover, to the extent that in a generally rising market the Fund maintains short positions in securities rising with the market, the net asset value of the Fund would be expected to increase to a lesser extent than the net asset value of an investment company that does not engage in short sales. OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligation in an OTC transaction, the Fund would negotiate directly with the counterparty. Each Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that a Fund has written lapses unexercised, because a Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by a Fund, are taxable as ordinary income. See "Taxation." Each Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by each Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When a Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. Each Fund may write (sell) covered call options on the Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. Each of these Funds may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the for the options). In view of the investment objectives of these Funds, each Fund generally would write call options only in circumstances where the investment adviser to the Fund does not anticipate significant appreciation of the underlying security in the near future or has otherwise determined to dispose of the security. A "covered" call option means generally that so long as a Fund is obligated as the writer of a call option, the Fund will (i) own the underlying securities subject to the option, or (ii) have the right to acquire the underlying securities through immediate conversion or exchange of convertible preferred stocks or convertible debt securities owned by the Fund. Although each Fund receives premium income from these activities, any appreciation realized on an underlying security will be limited by the terms of the call option. Each Fund may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, each Fund receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period, if the option is exercised. So long as the Fund remains obligated as a writer of a call option, it forgoes the opportunity to profit from increases in the market price of the underlying security above the exercise price of the option, except insofar as the premium represents such a profit (and retains the risk of loss should the value of the underlying security decline). PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Funds may purchase put options on underlying securities owned by the Funds as a defensive technique in order to protect against an anticipated decline in the value of the securities. Each of the Funds, as the holder of the put option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that a Fund must pay. These costs will reduce any profit the Fund might have realized had it sold the underlying security instead of buying the put option. The premium paid for the put option would reduce any capital gain otherwise available for distribution when the security is eventually sold. The purchase of put options will not be used by any Fund for leverage purposes. Each Fund may also purchase put options on underlying securities that they own and at the same time write a call option on the same security with the same exercise price and expiration date. Depending on whether the underlying security appreciates or depreciates in value, the Fund would sell the underlying security for the exercise price either upon exercise of the call option written by it or by exercising the put option held by it. A Fund would enter into such transactions in order to profit from the difference between the premium received by the Fund for the writing of the call option and the premium paid by the Fund for the purchase of the put option, thereby increasing the Fund's current return. The Funds may write (sell) put options on individual securities only to effect a "closing sale transaction." PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Funds may purchase and sell (write) put and call options on securities indices. An index assigns relative values to the securities included in the index and the index fluctuates with changes in the market values of the securities so included. Call options on indices are similar to call options on individual securities, except that, rather than giving the purchaser the right to take delivery of an individual security at a specified price, they give the purchaser the right to receive cash. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars, times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The multiplier for an index option performs a function similar to the unit of trading for a stock option. It determines the total dollar value per contract of each point in the difference between the exercise price of an option and the current level of the underlying index. A multiplier of 100 means that a one-point difference will yield $100. Options on different indices have different multipliers. When a Fund writes a call or put option on a stock index, the option is "covered," in the case of a call, or "secured," in the case of a put, if the Fund maintains in a segregated account with the Custodian cash or liquid securities equal to the contract value. A call option is also covered if the Fund holds a call on the same index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. A put option is also "secured" if the Fund holds a put on the same index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written or (ii) less than the exercise price of the put written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of a U.S. option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities (or cash in the case of an index option) at the exercise price. If a put or call option purchased by a Fund is not sold when it has remaining value, and if the market price of the underlying security (or index), in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security (or index) is purchased to hedge against price movements in a related security (or securities), the price of the put or call option may move more or less than the price of the related security (or securities). In this regard, there are differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Fund may be unable to close out a position. Finally, trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. Closing transactions can be made for OTC options only by negotiating directly with the counterparty or by a transaction in the secondary market, if any such market exists. Transfer of an OTC option is usually prohibited absent the consent of the original counterparty. There is no assurance that a Fund will be able to close out an OTC option position at a favorable price prior to its expiration. An OTC counterparty may fail to deliver or to pay, as the case may be. In the event of insolvency of the counterparty, a Fund might be unable to close out an OTC option position at any time prior to its expiration. Although a Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. When conducted outside the U.S., options transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and liquidity. Each Fund's options activities also may have an impact upon the level of their portfolio turnover and brokerage commissions. See "Portfolio Turnover." Each Fund's success in using options techniques depends, among other things, on IMI's ability to predict accurately the direction and volatility of price movements in the options and securities markets, and to select the proper type, timing of use and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS IN GENERAL. Each Fund may enter into futures contracts and options on futures contracts for hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a commodity at a specified price and time. When a purchase or sale of a futures contract is made by a Fund, that Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or liquid securities ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, each Fund will mark-to-market its open futures position. Each Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery of offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, each Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, each Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. When purchasing a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, a Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund, or, if lower, may cover the difference with cash or short-term securities. When selling a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, a Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). When selling a call option on a futures contract, each Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, equal the total market value of the futures contract underlying the call option. Alternatively, a Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund, or covering the difference if the price is higher. When selling a put option on a futures contract, each Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that equal the purchase price of the futures contract less any margin on deposit. Alternatively, a Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund, or, if lower, the Fund may hold securities to cover the difference. INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is an agreement between parties to buy or sell a specified debt security at a set price on a future date. The financial instruments that underlie interest rate futures contracts include long-term U.S. Treasury bonds, U.S. Treasury notes, and three-month U.S. Treasury bills. In the case of futures contracts traded on U.S. exchanges, the exchange itself or an affiliated clearing corporation assumes the opposite side of each transaction (i.e., as buyer or seller). A futures contract may be satisfied or closed out by delivery or purchase, as the case may be in the cash financial instrument or by payment of the change in cash value of the index. Frequently, using futures to effect a particular strategy instead of using the underlying or related security will result in lower transaction costs being incurred. Each Fund may sell interest rate futures contracts in order to hedge their portfolio securities whose value may be sensitive to changes in interest rates. In addition, each Fund could purchase and sell these futures contracts in order to hedge its holdings in certain common stocks (such as utilities, banks and savings and loan) whose value may be sensitive to change in interests rates. Each Fund could sell interest rate futures contracts in anticipation of or doing a market decline to attempt to offset the decrease in market value of its securities that might otherwise result. When a Fund is not fully invested in securities, it could purchase interest rate futures in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that it intends to purchase. If such purchases are made, an equivalent amount of interest rate futures contracts will be terminated by offsetting sales. Each Fund may also maintain the futures contract as a substitute for the underlying securities. OPTIONS ON INTEREST RATE FUTURES CONTRACTS. Each Fund may also purchase and write put and call options on interest rate futures contracts which are traded on a U.S. exchange or board of trade and sell or purchase such options to terminate an existing position. Options on interest rate futures give the purchaser the right (but not the obligation), in return for the premium paid, to assume a position in an interest rate futures contract at a specified exercise price at a time during the period of the option. Transactions in options on interest rate futures would enable each Fund to hedge against the possibility that fluctuations in interest rates and other factors may result in a general decline in prices of debt securities owned by the Fund. Assuming that any decline in the securities being hedged in accomplished by a rise in interest rates, the purchase of put options and sale of call options on the futures contracts may generate gains which can partially offset any decline in the value of the particular Fund's portfolio securities which have been hedged. However, if after a Fund purchases or sells an option on a futures contract, the value of the securities being hedged moves in the opposite direction from that contemplated, the Fund may experience losses in the form of premiums on such options which would partially offset gains the Fund would have. SWAPS, CAPS, FLOORS AND COLLARS. Ivy International Strategic Bond Fund may enter into interest rate, currency, credit and index swaps and the purchase or sale of related caps, floors and collars. The Fund expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. The Fund intends to use these transactions as hedges and not as speculative investments and will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Fund may be obligated to pay. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. A currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value differential among them and an index swap is an agreement to swap cash flows on a notional amount based on changes in the values of the reference indices. Credit swaps involve the exchange by the Fund with a counterparty of their respective commitments to pay or receive the difference in interest rates between a firm or country's rate and the risk free rate. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined range of interest rate or values. Ivy International Strategic Bond Fund may enter credit protection swap arrangements involving the sale by the Fund of a put option on a debt security which is exercisable by the buyer upon certain events, such as a default by the referenced creditor on the underlying debt or a bankruptcy event of the creditor. The Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps, caps, floors and collars are entered into for good faith hedging purposes, IMI and the Fund believe such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to its borrowing restrictions. The Fund will not enter into any swap, cap, floor or collar transaction unless, at the time of entering into such transaction, the unsecured long-term debt of the counterparty, combined with any credit enhancements, is rated at least A by S&P or Moody's or has an equivalent rating from a nationally recognized statistical rating organization or is determined to be of equivalent credit quality by IMI. If there is a default by the counterparty, the Fund may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Caps, floors and collars are more recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they are less liquid than swaps. FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Funds may engage in foreign currency futures contracts and related options transactions for hedging purposes. A foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a foreign currency at a specified price and time. An option on a foreign currency futures contract gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon the exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. The Funds may purchase call and put options on foreign currencies as a hedge against changes in the value of the U.S. dollar (or another currency) in relation to a foreign currency in which portfolio securities of each Fund may be denominated. A call option on a foreign currency gives the buyer the right to buy, and a put option the right to sell, a certain amount of foreign currency at a specified price during a fixed period of time. Each Fund may invest in options on foreign currency which are either listed on a domestic securities exchange or traded on a recognized foreign exchange. In those situations where foreign currency options may not be readily purchased (or where such options may be deemed illiquid) in the currency in which the hedge is desired, the hedge may be obtained by purchasing an option on a "surrogate" currency, i.e., a currency where there is tangible evidence of a direct correlation in the trading value of the two currencies. A surrogate currency's exchange rate movements parallel that of the primary currency. Surrogate currencies are used to hedge an illiquid currency risk, when no liquid hedge instruments exist in world currency markets for the primary currency. Each Fund will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade, or similar entity or quoted on an automated quotation system. Each Fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the aggregate initial margin deposits for futures contracts held by the Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," would exceed 5% of the liquidation value of the Fund's portfolio (or the Fund's net asset value), after taking into account unrealized profits and unrealized losses on any such contracts the Fund has entered into. A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. For additional information about margin deposits required with respect to futures contracts and options thereon, see "Futures Contracts and Options on Futures Contracts." RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in a Fund's portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an active secondary market will continue to exist. Currency futures contracts and options thereon may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such position also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in a Fund's ability to act upon economic events occurring in foreign markets during non business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. SECURITIES INDEX FUTURES CONTRACTS Ivy International Strategic Bond Fund may enter into securities index futures contracts as an efficient means of regulating the Fund's exposure to the equity markets. The Fund will not engage in transactions in futures contracts for speculation, but only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. The value of a unit is the current value of the stock index. For example, the S&P 500 Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The index futures contract specifies that no delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if the Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). RISKS OF SECURITIES INDEX FUTURES. Ivy International Strategic Bond Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. The Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, the Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although the Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when the Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, the Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. The Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. The Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. When purchasing an index futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, the Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund. When selling an index futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in cash or liquid assets in a segregated account with the Fund's custodian). COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts) and multiple interest rate transactions and some combination of futures, options, currency and interest rate transactions ("component" transactions), instead of a single transaction, as part of a single or combined strategy when, in the opinion of IMI, it is in the best interests of a Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. PORTFOLIO TURNOVER The Funds purchase securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining the Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. TRUSTEES AND OFFICERS Each Fund's Board of Trustees (the "Board") is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering each Fund's day-to-day operations. The Trustees and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: POSITION WITH BUSINESS AFFILIATIONS NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS John S. Anderegg, Jr. Trustee Chairman, Dynamics Research 60 Concord Street Corp. (instruments and controls); Wilmington, MA 01887 Director, Burr-Brown Corp. Age: 75 (operational amplifiers); Director, Metritage Incorporated (level measuring instruments); Trustee of Mackenzie Series Trust (1992-1998). James W. Broadfoot President President, Ivy Management Inc. 700 South Federal Hwy. and (1996-present); Senior Vice Suite 300 Trustee President, Ivy Management, Inc. Boca Raton, FL 33432 (1992-1996); Director and Senior Age: 56 Vice President, Mackenzie [*Deemed to be an Investment Management Inc. (1995- "interested person" present); Senior Vice President, of the Trust, as Mackenzie Investment Management defined under the Inc. (1990-1995). 1940 Act.] Paul H. Broyhill Trustee Chairman, BMC Fund, Inc. 800 Hickory Blvd. (1983-present); Chairman, Golfview Park-Box 500 Broyhill Family Foundation, Lenoir, NC 28645 Inc. (1983-Present); Chairman Age: 75 and President, Broyhill Investments, Inc. (1983-present); Chairman, Broyhill Timber Resources (1983-present); Management of a personal portfolio of fixed-income and equity investments (1983- present); Trustee of Mackenzie Series Trust (1988-1998); Director of The Mackenzie Funds Inc. (1988-1995). Keith J. Carlson Chairman Senior Vice President of 700 South Federal Hwy. and Mackenzie Investment Management, Suite 300 Trustee Inc. (1996-present); Senior Vice Boca Raton, FL 33432 President and Director of Age: 42 Mackenzie Investment Management, [*Deemed to be an Inc. (1994-1996); Senior Vice "interested person" President and Treasurer of of the Trust, as defined Mackenzie Investment Management, under the Inc. (1989-1994); Senior Vice 1940 Act.] President and Director of Ivy Management Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management Inc. (1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); Senior Vice President and Director, Ivy Mackenzie Services Corp. (1996- present); President and Director of Ivy Mackenzie Services Corp. (1993-1996); Trustee and President of Mackenzie Series Trust (1996-1998); Vice President of Mackenzie Series Trust (1994- 1998); Treasurer of Mackenzie Series Trust (1985-1994); President, Chief Executive Officer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Executive Vice President and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); Trustee of Mackenzie Series Trust (1996-1998). Stanley Channick Trustee President and Chief Executive 11 Bala Avenue Officer, The Whitestone Bala Cynwyd, PA 19004 Corporation (insurance agency); Age: 75 Chairman, Scott Management Company (administrative services for insurance companies); President, The Channick Group (consultants to insurance companies and national trade associations); Trustee of Mackenzie Series Trust (1994- 1998); Director of The Mackenzie Funds Inc. (1994-1995). Roy J. Glauber Trustee Mallinckrodt Professor of Lyman Laboratory Physics, Harvard University of Physics (1974-present); Trustee of Harvard University Mackenzie Series Trust (1994- Cambridge, MA 02138 1997). Age: 73 Dianne Lister Trustee President and Chief Executive 556 University Avenue Officer, The Hospital for Sick Toronto, Ontario L4J 2T4 Children Foundation (1993- present); Chief Operating Officer, The Hospital for Sick Children Foundation (1992-1993); Executive Vice President, The Hospital for Sick Children Foundation (1991-1992). Joseph G. Rosenthal Trustee Chartered Accountant 110 Jardin Drive (1958-present); Trustee of Unit #12 Mackenzie Series Trust Concord, Ontario Canada (1985-1998); Director of L4K 2T7 The Mackenzie Funds Inc. Age: 64 (1987-1995). Richard N. Silverman Trustee Director, Newton-Wellesley 18 Bonnybrook Road Hospital; Director, Beth Waban, MA 02168 Israel Hospital; Director, Age: 75 Boston Ballet; Director, Boston Children's Museum; Director, Brimmer and May School. J. Brendan Swan Trustee President, Airspray Inter- 4701 North Federal Hwy. national, Inc.; Joint Managing Suite 465 Director, Airspray International Pompano Beach, FL 33064 B.V. (an environmentally sensitive Age: 69 packaging company); Director of Polyglass LTD.; Director, The Mackenzie Funds Inc. (1992-1995); Trustee of Mackenzie Series Trust (1992-1998). Edward M. Tighe Trustee Chief Executive Officer, CITCO 5900 N. Andrews Avenue Technology Management, Inc. Suite 700 ("CITCO") (computer software Ft. Lauderdale, FL 33309 development and consulting) (1999-present); President and Director, Global Technology Management, Inc. (CITCO's predecessor) (1992-1998); Managing Director, Global Mutual Fund Services, Ltd. (financial services firm); President, Director and Chief Executive Officer, Global Mutual Fund Services, Inc. (1994-present). C. William Ferris Secretary/ Senior Vice President, 700 South Federal Hwy. Treasurer Chief Financial Officer Suite 300 and Secretary/Treasurer Boca Raton, FL 33432 of Mackenzie Investment Age: 54 Management Inc. (1995-present); Senior Vice President, Finance and Administration/Compliance Officer of Mackenzie Investment Management Inc. (1989-1994); Senior Vice President, Secretary/ Treasurer and Clerk of Ivy Management Inc. (1994- present); Vice President, Finance/Administration and Compliance Officer of Ivy Management Inc. (1992-1994); Senior Vice President, Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); President and Director of Ivy Mackenzie Services Corp. (1996-present); Secretary/Treasurer and Director of Ivy Mackenzie Services Corp. (1993-1996); Secretary/Treasurer of The Mackenzie Funds Inc. (1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994-1998). COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 1999) PENSION OR TOTAL RETIREMENT ESTIMATED COMPENSATION BENEFITS ANNUAL FROM TRUST AGGREGATE ACCRUED AS BENEFITS AND FUND NAME, COMPENSATION PART OF FUND UPON COMPLEX PAID POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES John S. Anderegg, Jr. (Trustee) James W. Broadfoot (Trustee and President) Paul H. Broyhill (Trustee) Keith J. Carlson (Trustee and Chairman) Stanley Channick (Trustee) Frank W. DeFriece, Jr. (Trustee) Dianne Lister (Trustee) Roy J. Glauber (Trustee) Joseph G. Rosenthal (Trustee) Richard N. Silverman (Trustee) J. Brendan Swan (Trustee) C. William Ferris (Secretary/ Treasurer) * The Fund complex consists of Ivy Fund and Mackenzie Solutions. To the knowledge of the Trust, as of ______________, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions [to be completed by amendment]. As of ______________, the Officers and Trustees of the Trust as a group owned beneficially or of record less than 1% of the outstanding Class A, Class B, Class C, Class I and Advisor Class shares of each of the twenty-one Ivy funds that are series of the Trust, except that [to be completed by amendment]. PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted to engage in personal securities transactions, subject to the requirements and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the "Code of Ethics"). The Code of Ethics is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as each Fund. Among other things, the Code of Ethics, which IMI believes complies with Rule 17j-1 under the 1940 Act, prohibits certain types of transactions absent prior approval, applies to portfolio managers, traders, research analysts and others involved in the investment advisory process, and imposes time periods during which personal transactions in certain securities may not be made, and requires the submission of duplicate broker confirmations and quarterly and annual reporting of securities transactions. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate officers or compliance personnel. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI provides business management and investment advisory services to each Fund pursuant to a Business Management and Investment Advisory Agreement (the "Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation organized under the laws of Ontario whose shares are listed for trading on the TSE. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund. IMI also currently acts as manager and investment adviser to the other series of Ivy Fund and the five series of Mackenzie Solutions. IMI also provides business management services to Ivy Global Natural Resources Fund. The Agreement obligates IMI to make investments for the account of each Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. IMI also determines the securities to be purchased or sold by each Fund and places orders with brokers or dealers who deal in such securities. Under the Agreement, IMI also provides certain business management services. IMI is obligated to (1) coordinate with each Fund's Custodian and monitor the services it provides to the Fund; (2) coordinate with and monitor any other third parties furnishing services to each Fund; (3) provide each Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund's needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by each Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with the Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. Ivy Bond Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 0.75% of the first $100 million of the Fund's average net assets, reduced to 0.50% of the Fund's average net assets in excess of $100 million. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Bond Fund paid IMI fees of $800,555, $1,042,273, and [ ] respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and [ ], respectively. Ivy International Strategic Bond Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 0.75% of the Fund's average net assets. During the fiscal year ended December 31, 1999, Ivy International Strategic Bond Fund paid IMI fees of [ ]. During the same period, IMI reimbursed Fund expenses of [ ]. Under the Agreement, the Trust pays the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. IMI currently limits Ivy Bond Fund's total operating expenses (excluding Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) to an annual rate of 1.95% of the Fund's average net assets, which may lower the Fund's expenses and increase its yield. IMI currently limits Ivy International Strategic Bond Fund's total operating expenses (excluding Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) to an annual rate of 1.25% of the Fund's average net assets, which may lower the Fund's expenses and increase its yield. The Agreement will continue in effect with respect to each Fund from year to year, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the Independent Trustees and (ii) either (a) by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund or (b) by the vote of a majority of the entire Board. If the question of continuance of the Agreement (or adoption of any new agreement) is presented to the shareholders, continuance (or adoption) shall be effected with respect to each Fund only if approved by the affirmative vote of a majority of the outstanding voting securities of that Fund. See "Capitalization and Voting Rights." The Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of that Fund, on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. The Agreement shall terminate automatically in the event of its assignment. DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of Ivy Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. Each Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund's behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at each Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to that Fund or by a Fund by vote of either a majority of the outstanding voting securities of that Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund represent an equal pro rata interest in that Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of each Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) each Fund's Class B shares will convert automatically into Class A shares of that Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the assets of each Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of each Fund's foreign securities. With respect to each Fund, the Custodian may receive, as partial payment for its services to that Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to a Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for each Fund. As compensation for those services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee for each Fund is based upon the net assets of the Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. During the fiscal year ended December 31, 1999, Ivy Bond Fund paid MIMI [ ] under the agreement. During the fiscal year ended December 31, 1999, Ivy International Strategic Bond Fund paid MIMI [ ] under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the Agreement, Ivy Bond Fund pays a monthly fee at an annual rate of $20.75 per open Class A, Class B, Class C and Advisor Class account. Ivy International Strategic Bond Fund pays a monthly fee at an annual rate of $20.00 for each Class A, Class B, Class C and Advisor Class account. Each Fund pays a monthly fee at an annual rate of $10.25 per open Class I account. In addition, each Fund pays a monthly fee at an annual rate of $4.58 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for Ivy Bond Fund for the fiscal year ended December 31, 1999 totaled [ ]. Such fees and expenses for Ivy International Strategic Bond Fund for the fiscal year ended December 31, 1999 totaled [ ]. Certain broker-dealers that maintain shareholder accounts with each Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by IMSC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. IMSC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to each Fund. As compensation for these services, each Fund pays MIMI a monthly fee at an annual rate of 0.10% of the Fund's average daily net asset value of its Class A, Class B, Class C, and Advisor Class Shares, and an annual rate of 0.01% of its average daily net assets for Class I. Such fees for the fiscal year ended December 31, 1999 for Ivy Bond Fund totaled [ ]. Such fees for the fiscal year ended December 31, 1999 for Ivy International Strategic Bond Fund totaled [ ]. AUDITORS [ ], independent public accountants, has been selected as auditors for the Trust. The audit services performed by [ ] include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of each Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by each Fund for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI attempts to deal directly with the principal market makers, except in those circumstances where IMI believes that a better price and execution are available elsewhere. IMI selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI in servicing all of its accounts. In addition, not all of these services may be used by IMI in connection with the services it provides to each Fund or the Trust. IMI may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI will not, however, execute brokerage transactions other than at the best price and execution. During the fiscal years ended December 31, 1997, 1998 and 1999, Ivy Bond Fund paid brokerage commissions of $1,361, $0 and [ ], respectively. During the fiscal year ended December 31, 1999, Ivy International Strategic Bond Fund paid brokerage commissions of [ ]. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI deems to be a desirable investment for the Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for any Fund shares with securities and may discontinue accepting securities as payment for any Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and the Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate any Fund upon written notice to shareholders. This might occur, for example, if a Fund did not reach or failed to maintain an economically viable size. The Trustees have authorized twenty-one series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy US Blue Chip Fund and Ivy [ ] Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting that funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of the Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to the Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Amended and Restated Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Amended and Restated Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of a Fund held personally liable for the obligations of the Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund (the other nineteen series of the Trust). (Effective April 18, 1997, Ivy International Fund suspended the offer of its shares to new investors). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $250 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to IMSC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds (except Ivy International Fund unless they have an existing Ivy International Fund account). Before effecting an exchange, shareholders of each Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. Advisor Class shareholders may exchange their outstanding Advisor Class shares for Advisor Class shares of another Ivy fund on the basis of the relative net asset value per share. The minimum value of Advisor Class shares which may be exchanged into an Ivy fund in which shares are not already held is $10,000. No exchange out of any Fund (other than by a complete exchange of all Fund shares) may be made if it would reduce the shareholder's interest in the Advisor Class shares of that Fund to less than $10,000. Each exchange will be made on the basis of the relative net asset value per share of the Ivy funds involved in the exchange next computed following receipt by IMSC of telephone instructions by IMSC or a properly executed request. Exchanges, whether written or telephonic, must be received by IMSC by the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) to receive the price computed on the day of receipt. Exchange requests received after that time will receive the price next determined following receipt of the request. The exchange privilege may be modified or terminated at any time, upon at least 60 days' notice to the extent required by applicable law. See "Redemptions." An exchange of shares between any of the Ivy funds will result in a taxable gain or loss. Generally, this will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. However, in certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on an exchange. See "Taxation." With limited exceptions, gain realized by a tax-deferred retirement plan will not be taxable to the plan and will not be taxed to the participant until distribution. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from IMSC, who may impose a charge for establishing the account. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, an eligible individual may contribute up to the lesser of $2,000 or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are both employed, and both are under age 70-1/2, each may set up his or her own IRA within these limits. If both earn at least $2,000 per year, the maximum potential contribution is $4,000 per year for both. For years after 1996, the result is similar even if one spouse has no earned income; if the joint earned income of the spouses is at least $4,000, a contribution of up to $2,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (or his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includable in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses and amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAS: Shares of each Fund also may be used as a funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $2,000 per year to a Roth IRA. The maximum contribution amount diminishes and gradually falls to zero for single filers with adjusted gross incomes ranging from $95,000 to $110,000. Married couples earning less than $150,000 combined, and filing jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum contribution amount for married couples filing jointly phases out from $150,000 to $160,000. An individual whose adjusted gross income exceeds the maximum phase-out amount cannot contribute to a Roth IRA. An eligible individual can contribute money to a traditional IRA and a Roth IRA as long as the total contribution to all IRAs does not exceed $2,000. Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA (other than the amount of nondeductible contributions) are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: reaching age 59 1/2, death, disability, deductible medical expenses, the purchase of health insurance for certain unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $30,000 or 25% of compensation or earned income to a money purchase pension plan or to a combination profit sharing and money purchase pension plan arrangement each year on behalf of each participant. To be deductible, total contributions to a profit sharing plan generally may not exceed 15% of the total compensation or earned income of all participants in the plan, and total contributions to a combination money purchase-profit sharing arrangement generally may not exceed 25% of the total compensation or earned income of all participants. The amount of compensation or earned income of any one participant that may be included in computing the deduction is limited (generally to $150,000 for benefits accruing in plan years beginning after 1993, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Custodial Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's separation from service. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay tax-deductible medical expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Trust in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from IMSC. Distributions from the 403(b)(7) Account may be made only following death, disability, separation from service, attainment of age 59-1/2, or incurring a financial hardship. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical expenses; (4) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (5) rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account. SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP accounts generally are subject to all rules applicable to IRA accounts, except the deduction limits, and are subject to certain employee participation requirements. No new salary reduction SEPs ("SARSEPs") may be established after 1996, but existing SARSEPs may continue to be maintained, and non-salary reduction SEPs may continue to be established as well as maintained after 1996. SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k) for years after 1996. An employee can make pre-tax salary reduction contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if the employer maintains or maintained any other qualified retirement plan with respect to which any contributions or benefits have been credited. SYSTEMATIC WITHDRAWAL PLAN An Advisor Class shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or by delivery to IMSC of a written election to have his or her shares withdrawn periodically (minimum distribution amount - $250), accompanied by a surrender to IMSC of all share certificates then outstanding in such shareholder's name, properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must continually maintain an account balance of at least $10,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisers. Additional investments made by investors participating in a Withdrawal Plan must equal at least $250 each while the Withdrawal Plan is in effect. An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to IMSC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of each Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Trust does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of a Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Trust reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Trust and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that for each twelve-month period (or portion thereof) that the account is maintained. The Trust may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Trust reserves the right to change these fees from time to time without advance notice. REDEMPTIONS Shares of each Fund are redeemed at their net asset value next determined after a proper redemption request has been received by IMSC. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by a Fund is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of the Funds. The Trust may redeem those accounts of Advisor Class shareholders who have maintained an investment of less than $10,000 in any Fund for a period of more than 12 months. All Advisor Class accounts below that minimum will be redeemed simultaneously when MIMI deems it advisable. The $10,000 balance will be determined by actual dollar amounts invested by the shareholder, unaffected by market fluctuations. The Trust will notify any such shareholder by certified mail of its intention to redeem such account, and the shareholder shall have 60 days from the date of such letter to invest such additional sums as shall raise the value of such account above that minimum. Should the shareholder fail to forward such sum within 60 days of the date of the Trust's letter of notification, the Trust will redeem the shares held in such account and transmit the redemption in value thereof to the shareholder. However, those shareholders who are investing pursuant to the Automatic Investment Method will not be redeemed automatically unless they have ceased making payments pursuant to the plan for a period of at least six consecutive months, and these shareholders will be given six-months' notice by the Trust before such redemption. Shareholders in a qualified retirement, pension or profit sharing plan who wish to avoid tax consequences must "rollover" any sum so redeemed into another qualified plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. Delivery of the proceeds of a wire redemption request of $250,000 or more may be delayed by each Fund for up to seven days if deemed appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. Each Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, each Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. NET ASSET VALUE The net asset value per share of each Fund is computed by dividing the value of the Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining the Fund's aggregate net assets, receivables are valued at their realizable amounts. Each Fund's liabilities, if not identifiable as belonging to a particular class of the Fund, are allocated among that Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in each Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted sale price on the exchange on which the security is principally traded. If no sale is reported at that time, the average between the last bid and asked price (the "Calculated Mean") is used. Unless otherwise noted herein, the value of a foreign security is determined in its national currency as of the normal close of trading on the foreign exchange on which it is traded or as of the close of regular trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, eastern time, on the day the value of the foreign security is determined. All other securities for which OTC market quotations are readily available are valued at the Calculated Mean. A debt security normally is valued on the basis of quotes obtained from at least two dealers (or one dealer who has made a market in the security) or pricing services that take into account appropriate valuation factors. Interest is accrued daily. Money market instruments are valued at amortized cost, which the Board believes approximates market value. An exchange-traded option is valued at the last sale price on the exchange on which it is principally traded, if available, and otherwise is valued at the last sale price on the other exchange(s). If there were no sales on any exchange, the option shall be valued at the Calculated Mean, if possible, and otherwise at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC option is valued at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of any Fund's portfolio securities occur between the time when a foreign exchange closes and the time when the Fund's net asset value is calculated (see following paragraph), such securities may be valued at fair value as determined by IMI in accordance with procedures approved by the Board. Portfolio securities are valued (and net asset value per share is determined) as of the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) on each day the Exchange is open for trading. The Exchange and the Trust's offices are expected to be closed, and net asset value will not be calculated, on the following national business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days when either or both of the Fund's Custodian or the Exchange close early as a result of a partial holiday or otherwise, the Trust reserves the right to advance the time on that day by which purchase and redemption requests must be received. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on each Fund's net asset value next determined after your instructions are received in proper form by IMSC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since each Fund invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, each Fund's net asset value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. The sale of each Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in a Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to each Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax adviser about the tax consequences to them of investing in any Fund. The Funds are not managed for tax-efficiency. Each Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, each Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies). As a regulated investment company, each Fund generally will not be subject to U.S. Federal income tax on its income and gains that it distributes to shareholders, if at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and the excess of any short-term capital gains over long-term capital losses) for the taxable year is distributed. Each Fund intends to distribute all such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each Fund must distribute during each calendar year, (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make distributions in accordance with the calendar year distribution requirements. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December of the year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year the distributions are declared, rather than the calendar year in which the distributions are received. OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS The taxation of equity options and OTC options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by a Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to that Fund. If a Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by a Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by a Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Some of the options, futures and foreign currency forward contracts in which a Fund may invest may be "section 1256 contracts." Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; however, as described below, foreign currency gains or losses arising from certain section 1256 contracts are ordinary in character. Also, section 1256 contracts held by each Fund at the end of each taxable year (and on certain other dates prescribed in the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. The transactions in options, futures and forward contracts undertaken by the Funds may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains or losses realized by each Fund. In addition, losses realized by a Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to each Fund are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by the Funds, which is taxed as ordinary income when distributed to shareholders. A Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a fund that did not engage in such transactions. Notwithstanding any of the foregoing, each Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of each Fund's taxable year, if certain conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time each Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of a Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES The Funds may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If a Fund receives a so-called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which a Fund held the PFIC shares. The Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. Each Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. A Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, a Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by each Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by a Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. Each Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by a Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, a Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Each Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. Each Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by the Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by the Fund. DISTRIBUTIONS Distributions of investment company taxable income are taxable to a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends paid by a Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received from U.S. corporations by the Fund, may qualify for the dividends received deduction. However, the revised alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by a Fund as capital gain dividends, are taxable to shareholders as long-term capital gains whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares; such distributions are not eligible for the dividends received deduction. Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the net asset value of a share of a Fund on the distribution date. A distribution of an amount in excess of any Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Shareholders will be notified annually as to the U.S. Federal tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the net asset value of the shares received. If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Shareholders should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. DISPOSITION OF SHARES Upon a redemption, sale or exchange of his or her shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and, if so, will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss realized on a redemption sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having been received by the shareholder with respect to such shares. In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of a Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by any Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of a Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible and may elect to "pass-through" to the Fund's shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of each Fund's taxable year whether the foreign taxes paid by that Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if a Fund makes the election described in the preceding paragraph, the source of the Fund's income flows through to its shareholders. With respect to each Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from a Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of a Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if a Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers. BACKUP WITHHOLDING Each Fund will be required to report to the Internal Revenue Service ("IRS") all taxable distributions as well as gross proceeds from the redemption of the Fund's shares, except in the case of certain exempt shareholders. All such distributions and proceeds will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1) the shareholder fails to furnish the Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amounts required to be withheld. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. This discussion does not purport to deal with all of the tax consequences applicable to each Fund or its shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in any Fund. PERFORMANCE INFORMATION Performance information for each Fund may be compared, in reports and promotional literature, to: (i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors may compare the Funds' results with those of a group of unmanaged securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, a widely used independent research firm that ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in each Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. Performance rankings are based on historical information and are not intended to indicate future performance. YIELD Quotations of yield for a specific class of shares of each Fund will be based on all investment income attributable to that class earned during a particular 30-day (or one month) period (including dividends and interest), less expenses attributable to that class accrued during the period ("net investment income"), and will be computed by dividing the net investment income per share of that class earned during the period by the net asset value per share on the last day of the period, according to the following formula: YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1] Where: a = dividends and interest earned during the period attributable to a specific class of shares, b = expenses accrued for the period attributable to that class (net of reimbursements), c = the average daily number of shares of that class outstanding during the period that were entitled to receive dividends, and d = the net asset value per share on the last day of the period. The yield for Advisor Class shares of Ivy Bond Fund for the 30-day period ended December 31, 1999 was [ ]%. The yield for Advisor Class shares of Ivy International Strategic Bond Fund for the 30-day period ended December 31, 1999 was [ ]%. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of each Fund will be expressed in terms of the average annual compounded rate of return that would cause a hypothetical investment in that class of each Fund made on the first day of a designated period to equal the ending redeemable value ("ERV") of such hypothetical investment on the last day of the designated period, according to the following formula: P(1 + T){superscript n} = ERV Where: P = a hypothetical initial payment of $1,000 to purchase shares of a specific class T = the average annual total return of shares of that class n = the number of years ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. For purposes of the above computation for each Fund, it is assumed that all dividends and capital gains distributions made by that Fund are reinvested at net asset value in additional Advisor Class shares during the designated period. Standardized Return quotations for each Fund do not take into account any required payments for federal or state income taxes. Standardized Return quotations are determined to the nearest 1/100 of 1%. Each Fund may, from time to time, include in advertisements, promotional literature or reports to shareholders or prospective investors total return data that are not calculated according to the formula set forth above ("Non-Standardized Return"). In determining the average annual total return for a specific class of shares of the Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of the Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of the Fund. The Standardized Return for Ivy Bond Fund Advisor Class shares for the year ended December 31, 1999 and the period from the date Advisor Class shares were first offered (January 1, 1998) through December 31, 1999 was [ ]%. The Standardized Return for Ivy International Strategic Bond Fund Advisor Class shares for the period from inception (May 3, 1999) through December 31, 1999 was [ ]%. CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of a Fund for a specified period. Cumulative total return quotations reflect changes in the price of a Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in the Fund's shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of a Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. The Cumulative Total Return for Ivy Bond Fund Advisor Class Shares for the year ended December 31, 1999 and the period from the date Advisor Class shares were first offered (January 1, 1998) through December 31, 1999 was [ ]%. The Cumulative Total Return for Ivy International Strategic Bond Fund Advisor Class Shares for the period from inception (May 3, 1999) through December 31, 1999 was [ ]%. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of the Fund's portfolio and operating expenses of each Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding a Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of each Fund's shares and the risks associated with each Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. Each Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS Each Fund's portfolio of investments as of December 31, 1999, Statement of Assets and Liabilities as of DECEMBER 31, 1999, Statement of Operations for the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for the fiscal year ended December 31, 1999, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in each Fund's December 31, 1999 Annual Report to shareholders, are incorporated by reference into this SAI. APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New York, 1997).] MOODY'S: (a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality, carrying the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa are judged by Moody's to be of high quality by all standards. Aa bonds are rated lower than Aaa bonds because margins of protection may not be as large as those of Aaa bonds, or fluctuations of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than those applicable to Aaa securities. Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa by Moody's are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. (b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Issuers within this Prime category may be given ratings 1, 2 or 3, depending on the relative strengths of these factors. The designation of Prime-1 indicates the highest quality repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have a strong ability for repayment while issuers voted Prime-3 are deemed to have an acceptable ability for repayment. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings described below may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA is judged by S&P to have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A by S&P has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to pay interest and repay principal. Although such bonds normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than debt in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. The commercial paper rating A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. For commercial paper with an A-2 rating, the capacity for timely payment on issues is satisfactory, but not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment, but are more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. The C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. IVY INTERNATIONAL FUND a series of IVY FUND Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION May 1, 2000 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of twenty-one fully managed portfolios, each of which (except for Ivy South America Fund and Ivy International Strategic Bond Fund) is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B, C and I shares of Ivy International Fund (the "Fund"). The other twenty portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Fund dated May 1, 2000 (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") Via Mizner Financial Plaza, Suite 300 700 South Federal Highway Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS GENERAL INFORMATION..........................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1 COMMON STOCKS.......................................................2 CONVERTIBLE SECURITIES..............................................2 DEBT SECURITIES.....................................................3 ILLIQUID SECURITIES.................................................5 FOREIGN SECURITIES..................................................6 DEPOSITORY RECEIPTS.................................................7 EMERGING MARKETS....................................................7 FOREIGN CURRENCIES..................................................8 FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................9 OTHER INVESTMENT COMPANIES.........................................10 REPURCHASE AGREEMENTS..............................................10 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................10 COMMERCIAL PAPER...................................................11 BORROWING..........................................................11 WARRANTS...........................................................11 OPTIONS TRANSACTIONS...............................................11 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................15 SECURITIES INDEX FUTURES CONTRACTS.................................18 INVESTMENT RESTRICTIONS.....................................................20 PORTFOLIO TURNOVER..........................................................22 TRUSTEES AND OFFICERS.......................................................23 INVESTMENT ADVISORY AND OTHER SERVICES......................................36 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............36 DISTRIBUTION SERVICES..............................................38 CUSTODIAN..........................................................42 FUND ACCOUNTING SERVICES...........................................42 TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................43 ADMINISTRATOR......................................................43 AUDITORS...........................................................43 BROKERAGE ALLOCATION........................................................43 CAPITALIZATION AND VOTING RIGHTS............................................44 SPECIAL RIGHTS AND PRIVILEGES...............................................46 AUTOMATIC INVESTMENT METHOD........................................46 EXCHANGE OF SHARES.................................................47 LETTER OF INTENT...................................................49 RETIREMENT PLANS...................................................50 REINVESTMENT PRIVILEGE.............................................54 RIGHTS OF ACCUMULATION.............................................54 SYSTEMATIC WITHDRAWAL PLAN.........................................54 GROUP SYSTEMATIC INVESTMENT PROGRAM................................55 REDEMPTIONS.................................................................56 CONVERSION OF CLASS B SHARES................................................57 NET ASSET VALUE.............................................................58 TAXATION 59 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............60 DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................62 DISTRIBUTIONS......................................................63 DISPOSITION OF SHARES..............................................63 FOREIGN WITHHOLDING TAXES..........................................64 BACKUP WITHHOLDING.................................................65 PERFORMANCE INFORMATION.....................................................65 FINANCIAL STATEMENTS........................................................71 APPENDIX A..................................................................72 GENERAL INFORMATION The Fund is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. The Fund commenced operations (Class A shares) on April 21, 1986. The inception date for Class B shares was October 23, 1993. The inception date for Class C shares was April 30, 1996. The inception date for Class I shares was October 6, 1994. Descriptions in this Statement of a particular investment practice or technique in which the Fund may engage or a financial instrument which the Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing the Fund's portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case the Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in the Fund's overall investment strategy, from time to time have a material impact on the Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS The Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Additional information regarding the characteristics and risks associated with the Fund's investment techniques is set forth below. Sales of shares of the Fund to new investors have been suspended. See "How to Buy Shares." The Fund's principal objective is long-term capital growth primarily through investment in equity securities. Consideration of current income is secondary to this principal objective. It is anticipated that at least 65% of the Fund's total assets will be invested in common stocks (and securities convertible into common stocks) principally traded in European, Pacific Basin and Latin American markets. Under this investment policy, at least three different countries (other than the United States) will be represented in the Fund's overall portfolio holdings. For temporary defensive purposes, the Fund may also invest in equity securities principally traded in U.S. markets. The Fund's subadviser, Northern Cross Investments Limited ("Northern Cross"), invests the Fund's assets in a variety of economic sectors, industry segments and individual securities to reduce the effects of price volatility in any one area and to enable shareholders to participate in markets that do not necessarily move in concert with U.S. markets. Northern Cross seeks to identify rapidly expanding foreign economies, and then searches out growing industries and corporations, focusing on companies with established records. Individual securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. Companies in which investments are made will generally have at least $1 billion in capitalization and a solid history of operations. When economic or market conditions warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities (i.e., those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poors Ratings Services ("S&P"), or if unrated, considered by Northern Cross to be of comparable quality), preferred stocks, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may borrow up to 10% of the value of its total assets from banks. The Fund may also purchase securities on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which the Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stock changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock, although typically not as much as the price of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. DEBT SECURITIES IN GENERAL. Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). The Fund may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayments, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain Federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association, and Student Loan Marketing Association. FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of certain debt securities are often offered on a "when-issued" basis, meaning the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the date of the commitment to purchase. Firm commitment agreements call for the purchase of securities at an agreed-upon price on a specified future date. The Fund uses such investment techniques in order to secure what is considered to be an advantageous price and yield to the Fund and not for purposes of leveraging the Fund's assets. In either instance, the Fund will maintain in a segregated account with its Custodian cash or liquid securities equal (on a daily marked-to-market basis) to the amount of its commitment to purchase the underlying securities. ILLIQUID SECURITIES The Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of the Fund. It is the Fund's policy that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between the Fund's decision to sell a restricted or illiquid security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, the Fund may be required to bear all or part of the registration expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which the Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares ("GDSs") and related depository instruments, and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in the Fund's domestic investments. Although IMI intends to invest the Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, the Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. It may be more difficult for the Fund's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the United States and foreign countries may be less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. IMI seeks to mitigate the risks to the Fund associated with the foregoing considerations through investment variation and continuous professional management. DEPOSITORY RECEIPTS ADRs, GDRs, ADSs, GDSs and related securities are depository instruments, the issuance of which is typically administered by a U.S. or foreign bank or trust company. These instruments evidence ownership of underlying securities issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges or over-the-counter ("OTC") in the United States. Unsponsored programs are organized independently and without the cooperation of the issuer of the underlying securities. As a result, information concerning the issuer may not be as current or as readily available as in the case of sponsored depository instruments, and their prices may be more volatile than if they were sponsored by the issuers of the underlying securities. EMERGING MARKETS The Fund could have significant investments in securities traded in emerging markets. Investors should recognize that investing in such countries involves special considerations, in addition to those set forth above, that are not typically associated with investing in United States securities and that may affect the Fund's performance favorably or unfavorably. In recent years, many emerging market countries around the world have undergone political changes that have reduced government's role in economic and personal affairs and have stimulated investment and growth. Historically, there is a strong direct correlation between economic growth and stock market returns. While this is no guarantee of future performance, IMI believes that investment opportunities (particularly in the energy, environmental services, natural resources, basic materials, power, telecommunications and transportation industries) may result within the evolving economies of emerging market countries from which the Fund and its shareholders will benefit. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. Such risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies that may restrict the Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until relatively recently in certain Eastern European countries, of a capital market structure or market-oriented economy; (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries; and (viii) the possibility that currency devaluations could adversely affect the value of the Fund's investments. Further, many emerging markets have experienced and continue to experience high rates of inflation. Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, the Fund could lose a substantial portion of any investments it has made in the affected countries. Further, few (if any) accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial in relation to the actual market values and may be adverse to the Fund's net asset value. Certain Eastern European countries that do not have well-established trading markets are characterized by an absence of developed legal structures governing private and foreign investments and private property. In addition, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of the Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of the Fund's cash and securities, the Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, the Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs and may purchase forward foreign currency contracts. Because of these factors, the value of the assets of the Fund as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and the Fund may incur costs in connection with conversions between various currencies. Although the Fund's custodian values the Fund's assets daily in terms of U.S. dollars, the Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. The Fund will do so from time to time, however, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. The Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. Because the Fund normally will be invested in both U.S. and foreign securities markets, changes in the Fund's share price may have a low correlation with movements in U.S. markets. The Fund's share price will reflect the movements of the different stock and bond markets in which it is invested (both U.S. and foreign), and of the currencies in which the investments are denominated. Thus, the strength or weakness of the U.S. dollar against foreign currencies may account for part of the Fund's investment performance. U.S. and foreign securities markets do not always move in step with each other, and the total returns from different markets may vary significantly. FOREIGN CURRENCY EXCHANGE TRANSACTIONS The Fund may enter into forward foreign currency contracts in order to protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date (usually less than a year), and typically is individually negotiated and privately traded by currency traders and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although foreign exchange dealers do not charge a fee for commissions, they do realize a profit based on the difference between the price at which they are buying and selling various currencies. Although these contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Moreover, there may be an imperfect correlation between the Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The Fund may purchase currency forwards and combine such purchases with sufficient cash or short-term securities to create unleveraged substitutes for investments in foreign markets when deemed advantageous. The Fund may also combine the foregoing with bond futures or interest rate futures contracts to create the economic equivalent of an unhedged foreign bond position. The Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which the Fund has or in which the Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to the Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. OTHER INVESTMENT COMPANIES The Fund may invest up to 10% of its total assets in the shares of other investment companies. As a shareholder of an investment company, the Fund would bear its ratable shares of the fund's expenses (which often include an asset-based management fee). The Fund could also lose money by investing in other investment companies, since the value of their respective investments and the income they generate will vary daily based on prevailing market conditions. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which the Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, the Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. The Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, the Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, the Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. The Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by the Fund. The Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. The Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on the Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of the Fund's borrowings will be fixed, the Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. WARRANTS The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. However, prices of warrants do not necessarily move in a tandem with the prices of the underlying securities, and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by the Fund were not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligation in an OTC transaction, the Fund would need to negotiate this result with the counterparty to the transaction. The Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that the Fund has written lapses unexercised, because the Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by the Fund, are taxable as ordinary income. See "Taxation." The Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by the Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When the Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell) covered call options on the Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. The Fund may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the Fund for the options). In view of the investment objectives of the Fund, the Fund generally would write call options only in circumstances where the investment adviser to the Fund does not anticipate significant appreciation of the underlying security in the near future or has otherwise determined to dispose of the security. A "covered" call option means generally that so long as the Fund is obligated as the writer of a call option, the Fund will (i) own the underlying securities subject to the option, or (ii) have the right to acquire the underlying securities through immediate conversion or exchange of convertible preferred stocks or convertible debt securities owned by the Fund. Although the Fund receives premium income from these activities, any appreciation realized on an underlying security will be limited by the terms of the call option. The Fund may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, the Fund receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period, if the option is exercised. So long as the Fund remains obligated as a writer of a call option, it forgoes the opportunity to profit from increases in the market price of the underlying security above the exercise price of the option, except insofar as the premium represents such a profit (and retains the risk of loss should the value of the underlying security decline). PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a put option on an underlying security owned by the Fund as a defensive technique in order to protect against an anticipated decline in the value of the security. The Fund, as the holder of the put option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs that the Fund must pay. These costs will reduce any profit the Fund might have realized had it sold the underlying security instead of buying the put option. The premium paid for the put option would reduce any capital gain otherwise available for distribution when the security is eventually sold. The purchase of put options will not be used by the Fund for leverage purposes. The Fund may also purchase a put option on an underlying security that it owns and at the same time write a call option on the same security with the same exercise price and expiration date. Depending on whether the underlying security appreciates or depreciates in value, the Fund would sell the underlying security for the exercise price either upon exercise of the call option written by it or by exercising the put option held by it. The Fund would enter into such transactions in order to profit from the difference between the premium received by the Fund for the writing of the call option and the premium paid by the Fund for the purchase of the put option, thereby increasing the Fund's current return. The Fund may write (sell) put options on individual securities only to effect a "closing sale transaction." PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may purchase and sell (write) put and call options on securities indices. An index assigns relative values to the securities included in the index and the index fluctuates with changes in the market values of the securities so included. Call options on indices are similar to call options on individual securities, except that, rather than giving the purchaser the right to take delivery of an individual security at a specified price, they give the purchaser the right to receive cash. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars, times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The multiplier for an index option performs a function similar to the unit of trading for a stock option. It determines the total dollar value per contract of each point in the difference between the exercise price of an option and the current level of the underlying index. A multiplier of 100 means that a one-point difference will yield $100. Options on different indices have different multipliers. When the Fund writes a call or put option on a stock index, the option is "covered," in the case of a call, or "secured," in the case of a put, if the Fund maintains in a segregated account with the Custodian cash or liquid securities equal to the contract value. A call option is also covered if the Fund holds a call on the same index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. A put option is also "secured" if the Fund holds a put on the same index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written or (ii) less than the exercise price of the put written, provided that the Fund maintains in a segregated account with the Custodian the difference in cash or liquid securities. RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of a U.S. option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities (or cash in the case of an index option) at the exercise price. If a put or call option purchased by the Fund is not sold when it has remaining value, and if the market price of the underlying security (or index), in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security (or index) is purchased to hedge against price movements in a related security (or securities), the price of the put or call option may move more or less than the price of the related security (or securities). In this regard, there are differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, the Fund may be unable to close out a position. Finally, trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. Closing transactions can be made for OTC options only by negotiating directly with the counterparty or by a transaction in the secondary market, if any such market exists. Transfer of an OTC option is usually prohibited absent the consent of the original counterparty. There is no assurance that the Fund will be able to close out an OTC option position at a favorable price prior to its expiration. An OTC counterparty may fail to deliver or to pay, as the case may be. In the event of insolvency of the counterparty, the Fund might be unable to close out an OTC option position at any time prior to its expiration. Although the Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. When conducted outside the U.S., options transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and liquidity. The Fund's options activities also may have an impact upon the level of its portfolio turnover and brokerage commissions. See "Portfolio Turnover." The Fund's success in using options techniques depends, among other things, on IMI's ability to predict accurately the direction and volatility of price movements in the options and securities markets, and to select the proper type, timing of use and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS IN GENERAL. The Fund may enter into futures contracts and options on futures contracts for hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a commodity at a specified price and time. When a purchase or sale of a futures contract is made by the Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or liquid securities ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A futures contract held by the Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by the Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, the Fund will mark-to-market its open futures position. The Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery of offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. When purchasing a futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, the Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund, or, if lower, may cover the difference with cash or short-term securities. When selling a futures contract, the Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). When selling a call option on a futures contract, the Fund will maintain with its Custodian in a segregated account (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, equal the total market value of the futures contract underlying the call option. Alternatively, the Fund may cover its position by entering into a long position in the same futures contract at a price no higher than the strike price of the call option, by owning the instruments underlying the futures contract, or by holding a separate call option permitting the Fund to purchase the same futures contract at a price not higher than the strike price of the call option sold by the Fund, or covering the difference if the price is higher. When selling a put option on a futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that equal the purchase price of the futures contract less any margin on deposit. Alternatively, the Fund may cover the position either by entering into a short position in the same futures contract, or by owning a separate put option permitting it to sell the same futures contract so long as the strike price of the purchased put option is the same or higher than the strike price of the put option sold by the Fund, or, if lower, the Fund may hold securities to cover the difference. FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may engage in foreign currency futures contracts and related options transactions for hedging purposes. A foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a foreign currency at a specified price and time. An option on a foreign currency futures contract gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon the exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. The Fund may purchase call and put options on foreign currencies as a hedge against changes in the value of the U.S. dollar (or another currency) in relation to a foreign currency in which portfolio securities of the Fund may be denominated. A call option on a foreign currency gives the buyer the right to buy, and a put option the right to sell, a certain amount of foreign currency at a specified price during a fixed period of time. The Fund may invest in options on foreign currency which are either listed on a domestic securities exchange or traded on a recognized foreign exchange. In those situations where foreign currency options may not be readily purchased (or where such options may be deemed illiquid) in the currency in which the hedge is desired, the hedge may be obtained by purchasing an option on a "surrogate" currency, i.e., a currency where there is tangible evidence of a direct correlation in the trading value of the two currencies. A surrogate currency's exchange rate movements parallel that of the primary currency. Surrogate currencies are used to hedge an illiquid currency risk, when no liquid hedge instruments exist in world currency markets for the primary currency. The Fund will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade, or similar entity or quoted on an automated quotation system. The Fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the aggregate initial margin deposits for futures contracts held by the Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," would exceed 5% of the liquidation value of the Fund's portfolio (or the Fund's net asset value), after taking into account unrealized profits and unrealized losses on any such contracts the Fund has entered into. A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. For additional information about margin deposits required with respect to futures contracts and options thereon, see "Futures Contracts and Options on Futures Contracts." RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the Fund's portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an active secondary market will continue to exist. Currency futures contracts and options thereon may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such position also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occurring in foreign markets during non business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. SECURITIES INDEX FUTURES CONTRACTS The Fund may enter into securities index futures contracts as an efficient means of regulating the Fund's exposure to the equity markets. The Fund will not engage in transactions in futures contracts for speculation, but only as a hedge against changes resulting from market conditions in the values of securities held in the Fund's portfolio or which it intends to purchase. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. The value of a unit is the current value of the stock index. For example, the S&P 500 Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the 500 common stocks included in the Index, and the Index fluctuates with changes in the market values of the shares of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The index futures contract specifies that no delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if the Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. The Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, the Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although the Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when the Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, the Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. The Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. The Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. When purchasing an index futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with a futures commission merchant ("FCM") as margin, are equal to the market value of the futures contract. Alternatively, the Fund may "cover" its position by purchasing a put option on the same futures contract with a strike price as high as or higher than the price of the contract held by the Fund. When selling an index futures contract, the Fund will maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid securities that, when added to the amounts deposited with an FCM as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in cash or liquid assets in a segregated account with the Fund's custodian). COMBINED TRANSACTIONS. The Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, and multiple currency transactions (including forward currency contracts) and some combination of futures, options, and currency transactions ("component" transactions), instead of a single transaction, as part of a single or combined strategy when, in the opinion of IMI, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. INVESTMENT RESTRICTIONS The Fund's investment objectives as set forth in the Prospectus under "Summary," and the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS The Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) borrow money, except for temporary purposes where investment transactions might advantageously require it. Any such loan may not be for a period in excess of 60 days, and the aggregate amount of all outstanding loans may not at any time exceed 10% of the value of the total assets of the Fund at the time any such loan is made; (v) purchase securities on margin; (vi) sell securities short; (vii) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act; (viii) invest more than 5% of the value of its total assets in the securities of any one issuer (except obligations of domestic banks or the U.S. Government, its agencies, authorities, and instrumentalities); (ix) hold more than 10% of the voting securities of any one issuer (except obligations of domestic banks or the U.S. Government, its agencies, authorities and instrumentalities); or (x) purchase the securities of any other open-end investment company, except as part of a plan of merger or consolidation. Under the Investment Company Act of 1940, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to the Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by the Fund, such as a change in market conditions or a change in the Fund's asset level or other circumstances beyond the Fund's control, will not be considered a violation. The Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. PORTFOLIO TURNOVER The Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, the Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by the Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. The Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining the Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. TRUSTEES AND OFFICERS Each Fund's Board of Trustees (the "Board") is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering each Fund's day-to-day operations. The Trustees and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: POSITION WITH BUSINESS AFFILIATIONS NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS John S. Anderegg, Jr. Trustee Chairman, Dynamics Research 60 Concord Street Corp. (instruments and controls); Wilmington, MA 01887 Director, Burr-Brown Corp. Age: 75 (operational amplifiers); Director, Metritage Incorporated (level measuring instruments); Trustee of Mackenzie Series Trust (1992-1998). James W. Broadfoot President President, Ivy Management Inc. 700 South Federal Hwy. and (1996-present); Senior Vice Suite 300 Trustee President, Ivy Management, Inc. Boca Raton, FL 33432 (1992-1996); Director and Senior Age: 56 Vice President, Mackenzie [*Deemed to be an Investment Management Inc. (1995- "interested person" present); Senior Vice President, of the Trust, as Mackenzie Investment Management defined under the Inc. (1990-1995). 1940 Act.] Paul H. Broyhill Trustee Chairman, BMC Fund, Inc. 800 Hickory Blvd. (1983-present); Chairman, Golfview Park-Box 500 Broyhill Family Foundation, Lenoir, NC 28645 Inc. (1983-Present); Chairman Age: 75 and President, Broyhill Investments, Inc. (1983-present); Chairman, Broyhill Timber Resources (1983-present); Management of a personal portfolio of fixed-income and equity investments (1983- present); Trustee of Mackenzie Series Trust (1988-1998); Director of The Mackenzie Funds Inc. (1988-1995). Keith J. Carlson Chairman Senior Vice President of 700 South Federal Hwy. and Mackenzie Investment Management, Suite 300 Trustee Inc. (1996-present); Senior Vice Boca Raton, FL 33432 President and Director of Age: 42 Mackenzie Investment Management, [*Deemed to be an Inc. (1994-1996); Senior Vice "interested person" President and Treasurer of of the Trust, as defined Mackenzie Investment Management, under the Inc. (1989-1994); Senior Vice 1940 Act.] President and Director of Ivy Management Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management Inc. (1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); Senior Vice President and Director, Ivy Mackenzie Services Corp. (1996- present); President and Director of Ivy Mackenzie Services Corp. (1993-1996); Trustee and President of Mackenzie Series Trust (1996-1998); Vice President of Mackenzie Series Trust (1994- 1998); Treasurer of Mackenzie Series Trust (1985-1994); President, Chief Executive Officer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Executive Vice President and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); Trustee of Mackenzie Series Trust (1996-1998). Stanley Channick Trustee President and Chief Executive 11 Bala Avenue Officer, The Whitestone Bala Cynwyd, PA 19004 Corporation (insurance agency); Age: 75 Chairman, Scott Management Company (administrative services for insurance companies); President, The Channick Group (consultants to insurance companies and national trade associations); Trustee of Mackenzie Series Trust (1994- 1998); Director of The Mackenzie Funds Inc. (1994-1995). Roy J. Glauber Trustee Mallinckrodt Professor of Lyman Laboratory Physics, Harvard University of Physics (1974-present); Trustee of Harvard University Mackenzie Series Trust (1994- Cambridge, MA 02138 1997). Age: 73 Dianne Lister Trustee President and Chief Executive 556 University Avenue Officer, The Hospital for Sick Toronto, Ontario L4J 2T4 Children Foundation (1993- present); Chief Operating Officer, The Hospital for Sick Children Foundation (1992-1993); Executive Vice President, The Hospital for Sick Children Foundation (1991-1992). Joseph G. Rosenthal Trustee Chartered Accountant 110 Jardin Drive (1958-present); Trustee of Unit #12 Mackenzie Series Trust Concord, Ontario Canada (1985-1998); Director of L4K 2T7 The Mackenzie Funds Inc. Age: 64 (1987-1995). Richard N. Silverman Trustee Director, Newton-Wellesley 18 Bonnybrook Road Hospital; Director, Beth Waban, MA 02168 Israel Hospital; Director, Age: 75 Boston Ballet; Director, Boston Children's Museum; Director, Brimmer and May School. J. Brendan Swan Trustee President, Airspray Inter- 4701 North Federal Hwy. national, Inc.; Joint Managing Suite 465 Director, Airspray International Pompano Beach, FL 33064 B.V. (an environmentally sensitive Age: 69 packaging company); Director of Polyglass LTD.; Director, The Mackenzie Funds Inc. (1992-1995); Trustee of Mackenzie Series Trust (1992-1998). Edward M. Tighe Trustee Chief Executive Officer, CITCO 5900 N. Andrews Avenue Technology Management, Inc. Suite 700 ("CITCO") (computer software Ft. Lauderdale, FL 33309 development and consulting) (1999-present); President and Director, Global Technology Management, Inc. (CITCO's predecessor) (1992-1998); Managing Director, Global Mutual Fund Services, Ltd. (financial services firm); President, Director and Chief Executive Officer, Global Mutual Fund Services, Inc. (1994-present). C. William Ferris Secretary/ Senior Vice President, 700 South Federal Hwy. Treasurer Chief Financial Officer Suite 300 and Secretary/Treasurer Boca Raton, FL 33432 of Mackenzie Investment Age: 54 Management Inc. (1995-present); Senior Vice President, Finance and Administration/Compliance Officer of Mackenzie Investment Management Inc. (1989-1994); Senior Vice President, Secretary/ Treasurer and Clerk of Ivy Management Inc. (1994- present); Vice President, Finance/Administration and Compliance Officer of Ivy Management Inc. (1992-1994); Senior Vice President, Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1994-present); Secretary/ Treasurer and Director of Ivy Mackenzie Distributors, Inc. (1993-1994); President and Director of Ivy Mackenzie Services Corp. (1996-present); Secretary/Treasurer and Director of Ivy Mackenzie Services Corp. (1993-1996); Secretary/Treasurer of The Mackenzie Funds Inc. (1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994-1998). COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 1999) PENSION OR TOTAL RETIREMENT ESTIMATED COMPENSATION BENEFITS ANNUAL FROM TRUST AGGREGATE ACCRUED AS BENEFITS AND FUND NAME, COMPENSATION PART OF FUND UPON COMPLEX PAID POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES John S. Anderegg, Jr. (Trustee) James W. Broadfoot (Trustee and President) Paul H. Broyhill (Trustee) Keith J. Carlson (Trustee and Chairman) Stanley Channick (Trustee) Frank W. DeFriece, Jr. (Trustee) Dianne Lister (Trustee) Roy J. Glauber (Trustee) Joseph G. Rosenthal (Trustee) Richard N. Silverman (Trustee) J. Brendan Swan (Trustee) C. William Ferris (Secretary/ Treasurer) *The Fund Complex consists of Ivy Fund and Mackenzie Solutions. To the knowledge of the Trust, as of March 31, 1999, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions [to be completed by amendment]. As of ________, 2000, the Officers and Trustees of the Trust as a group owned beneficially or of record less than 1% of the outstanding Class A, Class B, Class C, Class I and Advisor Class shares of each of the twenty-one Ivy funds that are series of the Trust, except that [to be completed by amendment]. PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted to engage in personal securities transactions, subject to the requirements and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the "Code of Ethics"). The Code of Ethics is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the Fund. Among other things, the Code of Ethics, which IMI believes complies with Rule 17j-1 under the 1940 Act, prohibits certain types of transactions absent prior approval, applies to portfolio managers, traders, research analysts and others involved in the investment advisory process, and imposes time periods during which personal transactions in certain securities may not be made, and requires the submission of duplicate broker confirmations and quarterly and annual reporting of securities transactions. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate officers and compliance personnel. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI provides business management and investment advisory services to the Fund pursuant to a Business Management and Investment Advisory Agreement (the "Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation organized under the laws of Ontario whose shares are listed for trading on the TSE. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund. IMI also currently acts as manager and investment adviser to the other series of Ivy Fund and the five series of Mackenzie Solutions. IMI also provides business management services to Ivy Global Natural Resources Fund. The Agreement obligates IMI to make investments for the account of the Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. IMI also determines the securities to be purchased or sold by the Fund and places orders with brokers or dealers who deal in such securities. Under the Agreement, IMI also provides certain business management services. IMI is obligated to (1) coordinate with the Fund's Custodian and monitor the services it provides to the Fund; (2) coordinate with and monitor any other third parties furnishing services to the Fund; (3) provide the Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund's needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by the Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with the Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. The Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 1.00% of the first $2.5 billion of the Fund's average net assets, reduced to 0.90% for average daily net assets over $2.5 billion. For the fiscal years ended December 31, 1997, 1998 and 1999, the Fund paid IMI fees of $22,898,279, $26,278,962 AND [ ], respectively. Under the Agreement, the Trust pays the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. The Agreement will continue in effect with respect to the Fund from year to year, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the Independent Trustees and (ii) either (a) by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the entire Board. If the question of continuance of the Agreement (or adoption of any new agreement) is presented to the shareholders, continuance (or adoption) shall be effected only if approved by the affirmative vote of a majority of the outstanding voting securities of the Fund. See "Capitalization and Voting Rights." The Agreement may be terminated with respect to the Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of the Fund, on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. The Agreement shall terminate automatically in the event of its assignment. SUBADVISORY CONTRACT . The Trust and IMI, on behalf of the Fund, have entered into a subadvisory contract with an independent investment adviser (the "Subadvisory Contract") under which the subadviser develops, recommends and implements an investment program and strategy for the Fund's portfolio and is responsible for making all portfolio security and brokerage decisions, subject to the supervision of IMI and, ultimately, the Board. Fees payable under the Subadvisory Contract accrue daily and are paid quarterly by IMI. Effective April 1, 1993, Northern Cross serves as subadviser for the Fund's portfolio pursuant to the Subadvisory Contract. As compensation for its services, Northern Cross is paid a fee by IMI at the annual rate of 0.60% of the Fund's average net assets for assets up to $1.5 billion. The annual fee is reduced to 0.55% of the next $1 billion in average daily net assets. For assets over $2.5 billion, Northern Cross is paid at an annual rate equal to 0.50% of the Fund's average daily net assets. As compensation for advisory services rendered for the fiscal years ended December 31, 1997, 1998 and 1999, IMI paid Northern Cross $13,738,967, $15,139,876 and [ ], respectively. Northern Cross, wholly-owned and operated by Hakan Castegren, is the successor to the investment advisory functions of Boston Overseas Investors, Inc. ("BOI"), which also was wholly-owned and operated by Hakan Castegren. Boston Investor Services, Inc., the successor to the administrative and research functions of BOI, provides administrative and research services to Northern Cross. Any amendment to the current Subadvisory Contract requires approval by votes of (a) a majority of the outstanding voting securities of the Fund affected thereby and (b) a majority of the Trustees who are not interested persons of the Trust or of any other party to such Contract. The Subadvisory Contract terminates automatically in the event of its assignment (as defined in the 1940 Act) or upon termination of the Agreement. Also, the Subadvisory Contract may be terminated by not more than 60 days' nor less than 30 days' written notice by either the Trust or IMI or upon not less than 120 days' notice by the Subadviser. The Subadvisory Contract provides that IMI or the Subadviser shall not be liable to the Trust, to any shareholder of the Trust, or to any other person, except for loss resulting from willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The Subadvisory Contract will continue in effect (subject to provisions for earlier termination as described above) only if such continuance is approved at least annually (a) by a majority of the Trustees who are not interested persons of the Trust or of any other party to the Contract and (b) by either (i) a majority of all of the Trustees of the Trust or (ii) a vote of a majority of the outstanding voting securities of any Fund affected thereby. On ____________, the Board, including a majority of the Independent Trustees, last approved the continuance of the Subadvisory Contract. DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of Ivy Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of the Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of the Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. The Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund's behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at each Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Pursuant to the Distribution Agreement, IMDI is entitled to deduct a commission on all Class A Fund shares sold equal to the difference, if any, between the public offering price, as set forth in the Fund's then-current prospectus, and the net asset value on which such price is based. Out of that commission, IMDI may reallow to dealers such concession as IMDI may determine from time to time. In addition, IMDI is entitled to deduct a CDSC on the redemption of Class A shares sold without an initial sales charge and Class B and Class C shares, in accordance with, and in the manner set forth in, the Prospectus. Under the Distribution Agreement, the Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. During the fiscal year ended December 31, 1999, IMDI received from sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was retained after dealer allowances. During the fiscal year ended December 31, 1999, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund. During the fiscal year ended December 31, 1999, IMDI Received [ ] in CDSCs on redemptions of Class C shares of the Fund. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of the Fund. The Distribution Agreement may be terminated with respect to the Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to the Fund or by the Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of the Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of the Fund represent an equal pro rata interest in the Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of the Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) the Fund's Class B shares will convert automatically into Class A shares of the Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to the Fund's Class A, Class B and Class C shares (each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees have concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan will benefit the Fund and its shareholders. The Trustees of the Trust believe that the Plans should result in greater sales and/or fewer redemptions of the Fund's shares, although it is impossible to know for certain the level of sales and redemptions of the Fund's shares in the absence of a Plan or under an alternative distribution arrangement. Under each Plan, the Fund pays IMDI a service fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the average daily net assets attributable to its Class A, Class B or Class C shares, as the case may be. This fee constitutes reimbursement to IMDI for service fees paid by IMDI. The services for which service fees may be paid include, among other things, advising clients or customers regarding the purchase, sale or retention of shares of the Fund, answering routine inquiries concerning the Fund and assisting shareholders in changing options or enrolling in specific plans. Pursuant to each Plan, service fee payments made out of or charged against the assets attributable to the Fund's Class A, Class B or Class C shares must be in reimbursement for services rendered for or on behalf of the affected class. The expenses not reimbursed in any one month may be reimbursed in a subsequent month. The Class A Plan does not provide for the payment of interest or carrying charges as distribution expenses. Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets attributable to its Class B or Class C shares. This fee constitutes compensation to IMDI and is not dependent on expenses incurred by IMDI. IMDI may reallow to dealers all or a portion of the service and distribution fees as IMDI may determine from time to time. The distribution fee compensates IMDI for expenses incurred in connection with activities primarily intended to result in the sale of the Fund's Class B or Class C shares, including the printing of prospectuses and reports for persons other than existing shareholders and the preparation, printing and distribution of sales literature and advertising materials. Pursuant to each Class B and Class C Plan, IMDI may include interest, carrying or other finance charges in its calculation of distribution expenses, if not prohibited from doing so pursuant to an order of or a regulation adopted by the SEC. Among other things, each Plan provides that (1) IMDI will submit to the Board at least quarterly, and the Trustees will review, written reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made; (2) each Plan will continue in effect only so long as such continuance is approved at least annually, and any material amendment thereto is approved, by the votes of a majority of the Board, including the Independent Trustees, cast in person at a meeting called for that purpose; (3) payments by the Fund under each Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares of the relevant class; and (4) while each Plan is in effect, the selection and nomination of Independent Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust. IMDI may make payments for distribution assistance and for administrative and accounting services from resources that may include the management fees paid by the Fund. IMDI also may make payments (such as the service fee payments described above) to unaffiliated broker-dealers banks, investment advisers, financial institutions and other entities for services rendered in the distribution of the Fund's shares. To qualify for such payments, shares may be subject to a minimum holding period. However, no such payments will be made to any dealer or broker or other party if at the end of each year the amount of shares held does not exceed a minimum amount. The minimum holding period and minimum level of holdings will be determined from time to time by IMDI. A report of the amount expended pursuant to each Plan, and the purposes for which such expenditures were incurred, must be made to the Board for its review at least quarterly. The Class B Plan and underwriting agreement were amended effective March 16, 1999 to permit IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other distribution-related expenses. In connection with such amendments, the Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the amendments to the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. During the fiscal year ended December 31, 1999, the Fund paid IMDI [ ] pursuant to its Class A plan. During the fiscal year ended December 31, 1999 the Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended December 31, 1999, the Fund paid IMDI [ ] pursuant to its Class C plan. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class A shares of the Fund: advertising [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class B shares of the Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general and administrative, [ ]; telephone, [ ]; and occupancy and equipment rental [ ]. During the fiscal year ended December 31, 1999, IMDI expended the following amounts in marketing Class C shares of the Fund: advertising, [ ]; printing and mailing of prospectuses to persons other than current shareholders, [ ]; compensation to dealers, [ ]; compensation to sales personnel, [ ]; seminars and meetings, [ ]; travel and entertainment, [ ]; general administrative, [ ]; telephone, [ ]; and occupancy and equipment rental, [ ]. Each Plan may be amended at any time with respect to the class of shares of the Fund to which the Plan relates by vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of considering such amendment. Each Plan may be terminated at any time with respect to the class of shares of the Fund to which the Plan relates, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of that class. If the Distribution Agreement or the Distribution Plans are terminated (or not renewed) with respect to any of the Ivy funds (or class of shares thereof), each may continue in effect with respect to any other fund (or Class of shares thereof) as to which they have not been terminated (or have been renewed). CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the assets of the Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of the Fund's foreign securities. With respect to the Fund, the Custodian may receive, as partial payment for its services to the Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to a Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for the Fund. As compensation for those services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of the Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. During the fiscal year ended December 31, 1999, the Fund paid MIMI [ ] under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at an annual rate of $20.00 for each open Class A, Class B and Class C account. The Fund pays $10.25 per open Class I account. In addition, the Fund pays a monthly fee at an annual rate of $4.58 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended December 31, 1999 for the fund totaled [ ]. Certain broker-dealers that maintain shareholder accounts with the Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by IMSC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. IMSC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to the Fund. As compensation for these services, the Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I. Such fees for the fiscal year ended December 31, 1999 for the Fund totaled [ ]. Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of the Fund. AUDITORS [ ], independent public accountants, has been selected as auditors for the Trust. The audit services performed by [ ] include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI and/or Northern Cross places orders for the purchase and sale of the Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by the Fund for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI and/or Northern Cross attempts to deal directly with the principal market makers, except in those circumstances where IMI and/or Northern Cross believes that a better price and execution are available elsewhere. IMI and/or Northern Cross selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI and/or Northern Cross in servicing all of its accounts. In addition, not all of these services may be used by IMI and/or Northern Cross in connection with the services it provides to the Fund or the Trust. IMI and/or Northern Cross may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI and/or Northern Cross will not, however, execute brokerage transactions other than at the best price and execution. During the fiscal years ended December 31, 1997, 1998 and 1999, the Fund paid brokerage commissions of $2,987,187, $1,728,009 AND [ ], respectively. The Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. The Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI and/or Northern Cross deems to be a desirable investment for the Fund. While no minimum has been established, it is expected that the Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for the Fund shares with securities and may discontinue accepting securities as payment for the Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of the Fund, and the Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of the Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of the Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate any Fund upon written notice to shareholders. This might occur, for example, if a Fund did not reach or failed to maintain an economically viable size. The Trustees have authorized twenty-one series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for the Fund and Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund, as well as Class I shares for the Fund, Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy US Blue Chip Fund and Ivy [ ] Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of the Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of the Fund are entitled to vote alone on matters that only affect the Fund. All classes of shares of the Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of the Fund, then the shareholders of the Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the shares of the Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by the Fund, the matter shall have been effectively acted upon with respect to the Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Amended and Restated Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Amended and Restated Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of the Fund held personally liable for the obligations of the Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Fund, whose shares are also distributed by IMDI. These funds are: Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and IVY [ ] FUND (the other twenty series of the Trust). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. Effective April 18, 1997, the Fund suspended the offer of its shares to new investors. Shares of the Fund are available for purchase only by existing shareholders of the Fund. Once a shareholder's account has been liquidated, the shareholder may not invest in the Fund at a later date. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to IMSC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of the Fund have an exchange privilege with other Ivy funds. Before effecting an exchange, shareholders of the Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their Class A shares ("outstanding Class A shares") for Class A shares of another Ivy fund ("new Class A Shares") on the basis of the relative net asset value per Class A share, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A shares and the sales charge payable at the time of the exchange on the new Class A shares. (The additional sales charge will be waived for Class A shares that have been invested for a period of 12 months or longer.) Class A shareholders may also exchange their shares for shares of Ivy Money Market Fund (no initial sales charge will be assessed at the time of such an exchange). Each Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of The Legend Group and United Planners Financial Services of America, Inc. This privilege will apply only to Class A Shares of a Fund that are purchased using all or a portion of the proceeds obtained by such clients through redemptions of shares of a mutual fund (other than one of the Funds) on which a sales charge was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer privilege must be made with in 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV transfer privilege also applies to Fund shares purchased directly by clients of such dealers as long as their accounts are linked to the dealer's master account. The normal service fee, as described in the "Initial Sales Charge Alternative - Class A Shares" section of the Prospectus, will be paid to those dealers in connection with these purchases. IMDI may from time to time pay a special cash incentive to The Legend Group or United Planners Financial Services of America, Inc. in connection with sales of shares of a Fund by its registered representative under the NAV transfer privilege. Additional information on sales charge reductions or waivers may be obtained from IMDI at the address listed on the cover of this Statement of Additional Information. CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders may exchange their Class A shares that are subject to a contingent deferred sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy fund ("new Class A shares") on the basis of the relative net asset value per Class A share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class A shares. Class A shareholders of the Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC period following an exchange if such period is longer than the CDSC period, if any, applicable to the new Class A shares. For purposes of computing the CDSC that may be payable upon the redemption of the new Class A shares, the holding period of the outstanding Class A shares is "tacked" onto the holding period of the new Class A shares. CLASS B: Class B shareholders may exchange their Class B shares ("outstanding Class B shares") for Class B shares of another Ivy fund ("new Class B shares") on the basis of the relative net asset value per Class B share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class B shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to that Fund's CDSC schedule (or period) following an exchange if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the new Class B shares. Class B shares of the Fund acquired through an exchange of Class B shares of another Ivy fund will be subject to that Fund's CDSC schedule (or period) if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the Ivy fund from which the exchange was made. For purposes of both the conversion feature and computing the CDSC that may be payable upon the redemption of the new Class B shares (prior to conversion), the holding period of the outstanding Class B shares is "tacked" onto the holding period of the new Class B shares. The following CDSC table applies to Class B shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund: CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE YEAR SINCE PURCHASE First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I : Subject to the restrictions set forth in the following paragraph, Class I shareholders may exchange their outstanding Class I shares for Class I shares of another Ivy fund on the basis of the relative net asset value per share. ALL CLASSES: The minimum value of shares which may be exchanged into an Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case of Class I shares). No exchange out of the Fund (other than by a complete exchange of all Fund shares) may be made if it would reduce the shareholder's interest in the Fund to less than $1,000 ($250,000 in the case of Class I shares). Each exchange will be made on the basis of the relative net asset value per share of the Ivy funds involved in the exchange next computed following receipt by IMSC of telephone instructions by IMSC or a properly executed request. Exchanges, whether written or telephonic, must be received by IMSC by the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) to receive the price computed on the day of receipt. Exchange requests received after that time will receive the price next determined following receipt of the request. The exchange privilege may be modified or terminated at any time, upon at least 60 days' notice to the extent required by applicable law. See "Redemptions." An exchange of shares between any of the Ivy funds will result in a taxable gain or loss. Generally, this will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. However, in certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on an exchange. See "Taxation." With limited exceptions, gain realized by a tax-deferred retirement plan will not be taxable to the plan and will not be taxed to the participant until distribution. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. LETTER OF INTENT Reduced sales charges apply to initial investments in Class A shares of the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may be submitted by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account. See the Account Application in the Prospectus. Any investor may submit a Letter of Intent stating that he or she will invest, over a period of 13 months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may be submitted at the time of an initial purchase of Class A shares of the Fund or within 90 days of the initial purchase, in which case the Letter of Intent will be back dated. A shareholder may include, as an accumulation credit, the value (at the applicable offering price) of all Class A shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Cundill Value Fund, Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund and Ivy [ ] Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy or the Trust to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of such letter before signing. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from IMSC, who may impose a charge for establishing the account. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, an eligible individual may contribute up to the lesser of $2,000 or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are both employed, and both are under age 70-1/2, each may set up his or her own IRA within these limits. If both earn at least $2,000 per year, the maximum potential contribution is $4,000 per year for both. For years after 1996, the result is similar even if one spouse has no earned income; if the joint earned income of the spouses is at least $4,000, a contribution of up to $2,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (or his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includable in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses and amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAS: Shares of the Fund also may be used as a funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $2,000 per year to a Roth IRA. The maximum contribution amount diminishes and gradually falls to zero for single filers with adjusted gross incomes ranging from $95,000 to $110,000. Married couples earning less than $150,000 combined, and filing jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum contribution amount for married couples filing jointly phases out from $150,000 to $160,000. An individual whose adjusted gross income exceeds the maximum phase-out amount cannot contribute to a Roth IRA. An eligible individual can contribute money to a traditional IRA and a Roth IRA as long as the total contribution to all IRAs does not exceed $2,000. Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA (other than the amount of nondeductible contributions) are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: reaching age 59 1/2, death, disability, deductible medical expenses, the purchase of health insurance for certain unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $30,000 or 25% of compensation or earned income to a money purchase pension plan or to a combination profit sharing and money purchase pension plan arrangement each year on behalf of each participant. To be deductible, total contributions to a profit sharing plan generally may not exceed 15% of the total compensation or earned income of all participants in the plan, and total contributions to a combination money purchase-profit sharing arrangement generally may not exceed 25% of the total compensation or earned income of all participants. The amount of compensation or earned income of any one participant that may be included in computing the deduction is limited (generally to $150,000 for benefits accruing in plan years beginning after 1993, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Custodial Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's separation from service. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay tax-deductible medical expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Trust in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from IMSC. Distributions from the 403(b)(7) Account may be made only following death, disability, separation from service, attainment of age 59-1/2, or incurring a financial hardship. A 10% penalty tax generally applies to distributions to an individual before he or she reaches age 59-1/2, unless the individual (1) has reached age 55 and separated from service; (2) dies or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical expenses; (4) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (5) rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account. SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP accounts generally are subject to all rules applicable to IRA accounts, except the deduction limits, and are subject to certain employee participation requirements. No new salary reduction SEPs ("SARSEPs") may be established after 1996, but existing SARSEPs may continue to be maintained, and non-salary reduction SEPs may continue to be established as well as maintained after 1996. SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k) for years after 1996. An employee can make pre-tax salary reduction contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if the employer maintains or maintained any other qualified retirement plan with respect to which any contributions or benefits have been credited. REINVESTMENT PRIVILEGE Shareholders who have redeemed Class A shares of the Fund may reinvest all or a part of the proceeds of the redemption back into Class A shares of the Fund at net asset value (without a sales charge) within 60 days from the date of redemption. This privilege may be exercised only once. The reinvestment will be made at the net asset value next determined after receipt by IMSC of the reinvestment order accompanied by the funds to be reinvested. No compensation will be paid to any sales personnel or dealer in connection with the transaction. Any redemption is a taxable event. A loss realized on a redemption generally may be disallowed for tax purposes if the reinvestment privilege is exercised within 30 days after the redemption. In certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on a redemption if the reinvestment privilege is exercised. See "Taxation." RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of the Fund. See "Initial Sales Charge Alternative -- Class A Shares" in the Prospectus. The reduced sales charge is applicable to investments made at one time by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account (including a pension, profit sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code). Rights of Accumulation are also applicable to current purchases of all of the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons enumerated above, where the aggregate quantity of Class A shares of such funds (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) and of any other investment company distributed by IMDI, previously purchased or acquired and currently owned, determined at the higher of current offering price or amount invested, plus the Class A shares being purchased, amounts to $50,000 or more for all funds other than Ivy Bond Fund; or $100,000 or more for Ivy Bond Fund. At the time an investment takes place, IMSC must be notified by the investor or his or her dealer that the investment qualifies for the reduced sales charge on the basis of previous investments. The reduced sales charge is subject to confirmation of the investor's holdings through a check of the particular fund's records. SYSTEMATIC WITHDRAWAL PLAN A shareholder (except shareholders with accounts in Class I) may establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or by delivery to IMSC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to IMSC of all share certificates then outstanding in such shareholder's name, properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisers. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each while the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal Plan is in effect may be disadvantageous to the investor because of applicable initial sales charges or CDSCs. An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to IMSC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of the Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Trust does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of the Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Trust reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Trust and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that for each twelve-month period (or portion thereof) that the account is maintained. The Trust may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Trust reserves the right to change these fees from time to time without advance notice. Class A shares of the Fund are made available to Merrill Lynch Daily K Plan (the "Plan") participants at NAV without an initial sales charge if: (i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets invested in broker/dealer funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are made available pursuant to a Service Agreement between Merrill Lynch and the fund's principal underwriter or distributor and in funds advised or managed by MLAM (collectively, the "Applicable Investments"); (ii) the Plan is recordkept on a daily valuation basis by an independent recordkeeper whose services are provided through a contract or alliance arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets, excluding money market funds, invested in Applicable Investments; or (iii) the Plan has 500 or more eligible employees, as determined by Merrill Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. Alternatively, Class B shares of the Fund are made available to Plan participants at NAV without a CDSC if the Plan conforms with the requirements for eligibility set forth in (i) through (iii) above but either does not meet the $3 million asset threshold or does not have 500 or more eligible employees. Plans recordkept on a daily basis by Merrill Lynch or an independent recordkeeper under a contract with Merrill Lynch that are currently investing in Class B shares of the Fund convert to Class A shares once the Plan has reached $5 million invested in Applicable Investments, or 10 years after the date of the initial purchase by a participant under the Plan--the Plan will receive a Plan level share conversion. REDEMPTIONS Shares of the Fund are redeemed at their net asset value next determined after a proper redemption request has been received by IMSC, less any applicable CDSC. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by the Fund is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of the Fund. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1,000 in the Fund for a period of more than 12 months. All accounts below that minimum will be redeemed simultaneously when MIMI deems it advisable. The $1,000 balance will be determined by actual dollar amounts invested by the shareholder, unaffected by market fluctuations. The Trust will notify any such shareholder by certified mail of its intention to redeem such account, and the shareholder shall have 60 days from the date of such letter to invest such additional sums as shall raise the value of such account above that minimum. Should the shareholder fail to forward such sum within 60 days of the date of the Trust's letter of notification, the Trust will redeem the shares held in such account and transmit the redemption in value thereof to the shareholder. However, those shareholders who are investing pursuant to the Automatic Investment Method will not be redeemed automatically unless they have ceased making payments pursuant to the plan for a period of at least six consecutive months, and these shareholders will be given six-months' notice by the Trust before such redemption. Shareholders in a qualified retirement, pension or profit sharing plan who wish to avoid tax consequences must "rollover" any sum so redeemed into another qualified plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. Delivery of the proceeds of a wire redemption request of $250,000 or more may be delayed by the Fund for up to seven days if deemed appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. The Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. CONVERSION OF CLASS B SHARES As described in the Prospectus, Class B shares of the Fund will automatically convert to Class A shares of the Fund, based on the relative net asset values per share of the two classes, no later than the month following the eighth anniversary of the initial issuance of such Class B shares of the Fund occurs. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance shall mean: (1) the date on which such Class B shares were issued, or (2) for Class B shares obtained through an exchange, or a series of exchanges, (subject to the exchange privileges for Class B shares) the date on which the original Class B shares were issued. For purposes of conversion of Class B shares, Class B shares purchased through the reinvestment of dividends and capital gain distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those shares in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through the reinvestment of dividends and capital gain distributions. NET ASSET VALUE The net asset value per share of the Fund is computed by dividing the value of the Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining the Fund's aggregate net assets, receivables are valued at their realizable amounts. The Fund's liabilities, if not identifiable as belonging to a particular class of the Fund, are allocated among the Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in the Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last quoted sale price on the exchange on which the security is principally traded. If no sale is reported at that time, the average between the last bid and asked price (the "Calculated Mean") is used. Unless otherwise noted herein, the value of a foreign security is determined in its national currency as of the normal close of trading on the foreign exchange on which it is traded or as of the close of regular trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, eastern time, on the day the value of the foreign security is determined. All other securities for which OTC market quotations are readily available are valued at the Calculated Mean. A debt security normally is valued on the basis of quotes obtained from at least two dealers (or one dealer who has made a market in the security) or pricing services that take into account appropriate valuation factors. Interest is accrued daily. Money market instruments are valued at amortized cost, which the Board believes approximates market value. An exchange-traded option is valued at the last sale price on the exchange on which it is principally traded, if available, and otherwise is valued at the last sale price on the other exchange(s). If there were no sales on any exchange, the option shall be valued at the Calculated Mean, if possible, and otherwise at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC option is valued at the last offering price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of the Fund's portfolio securities occur between the time when a foreign exchange closes and the time when the Fund's net asset value is calculated (see following paragraph), such securities may be valued at fair value as determined by IMI in accordance with procedures approved by the Board. Portfolio securities are valued (and net asset value per share is determined) as of the close of regular trading on the Exchange (normally 4:00 p.m., eastern time) on each day the Exchange is open for trading. The Exchange and the Trust's offices are expected to be closed, and net asset value will not be calculated, on the following national business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days when either or both of the Fund's Custodian or the Exchange close early as a result of a partial holiday or otherwise, the Trust reserves the right to advance the time on that day by which purchase and redemption requests must be received. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on the Fund's net asset value next determined after your instructions are received in proper form by IMSC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since the Fund invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, the Fund's net asset value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. The sale of the Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in the Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to the Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax adviser about the tax consequences to them of investing in the Fund. The Fund is not managed for tax-efficiency. The Fund intends to be taxed as a regulated investment company under Subchapter M of the Code. Accordingly, the Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies). As a regulated investment company, the Fund generally will not be subject to U.S. Federal income tax on its income and gains that it distributes to shareholders, if at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and the excess of any short-term capital gains over long-term capital losses) for the taxable year is distributed. The Fund intends to distribute all such income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must distribute during each calendar year, (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, the Fund intends to make distributions in accordance with the calendar year distribution requirements. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by the Fund in October, November or December of the year with a record date in such a month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year the distributions are declared, rather than the calendar year in which the distributions are received. OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS The taxation of equity options and OTC options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by the Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to the Fund. If the Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by the Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by the Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Some of the options, futures and foreign currency forward contracts in which the Fund may invest may be "section 1256 contracts." Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; however, as described below, foreign currency gains or losses arising from certain section 1256 contracts are ordinary in character. Also, section 1256 contracts held by the Fund at the end of each taxable year (and on certain other dates prescribed in the Code) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. The transactions in options, futures and forward contracts undertaken by the Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains or losses realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to the Fund are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by the Fund, which is taxed as ordinary income when distributed to shareholders. The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a fund that did not engage in such transactions. Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of the Fund's taxable year, if certain conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of the Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES The Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If the Fund receives a so-called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which a Fund held the PFIC shares. The Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. The Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. The Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, the Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. The Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by the Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, the Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. The Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. The Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by the Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by the Fund. DISTRIBUTIONS Distributions of investment company taxable income are taxable to a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends paid by the Fund to a corporate shareholder, to the extent such dividends are attributable to dividends received from U.S. corporations by the Fund, may qualify for the dividends received deduction. However, the revised alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated by the Fund as capital gain dividends, are taxable to shareholders as long-term capital gains whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares; such distributions are not eligible for the dividends received deduction. Shareholders receiving distributions in the form of newly issued shares will have a cost basis in each share received equal to the net asset value of a share of the Fund on the distribution date. A distribution of an amount in excess of the Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Shareholders will be notified annually as to the U.S. Federal tax status of distributions and shareholders receiving distributions in the form of newly issued shares will receive a report as to the net asset value of the shares received. If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by the Fund, such distribution generally will be taxable even though it represents a return of invested capital. Shareholders should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. DISPOSITION OF SHARES Upon a redemption, sale or exchange of his or her shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and, if so, will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss realized on a redemption sale or exchange will be disallowed to the extent the shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six-months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received or treated as having been received by the shareholder with respect to such shares. In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of the Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by the Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of securities of foreign corporations, the Fund will be eligible and may elect to "pass-through" to the Fund's shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of the Fund's taxable year whether the foreign taxes paid by the Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if the Fund makes the election described in the preceding paragraph, the source of the Fund's income flows through to its shareholders. With respect to the Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from the Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of the Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if the Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers. BACKUP WITHHOLDING The Fund will be required to report to the Internal Revenue Service ("IRS") all taxable distributions as well as gross proceeds from the redemption of the Fund's shares, except in the case of certain exempt shareholders. All such distributions and proceeds will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1) the shareholder fails to furnish the Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amounts required to be withheld. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. This discussion does not purport to deal with all of the tax consequences applicable to the Fund or shareholders. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. PERFORMANCE INFORMATION Performance information for the classes of shares of the Fund may be compared, in reports and promotional literature, to: (i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that investors may compare the Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, a widely used independent research firm that ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. Performance rankings are based on historical information and are not intended to indicate future performance. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of the Fund will be expressed in terms of the average annual compounded rate of return that would cause a hypothetical investment in that class of the Fund made on the first day of a designated period to equal the ending redeemable value ("ERV") of such hypothetical investment on the last day of the designated period, according to the following formula: P(1 + T){superscript n} = ERV Where: P = a hypothetical initial payment of $1,000 to purchase shares of a specific class T = the average annual total return of shares of that class n = the number of years ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. For purposes of the above computation for the Fund, it is assumed that all dividends and capital gains distributions made by the Fund are reinvested at net asset value in additional shares of the same class during the designated period. In calculating the ending redeemable value for Class A shares and assuming complete redemption at the end of the applicable period, the maximum 5.75% sales charge is deducted from the initial $1,000 payment and, for Class B and Class C shares, the applicable CDSC imposed upon redemption of Class B or Class C shares held for the period is deducted. Standardized Return quotations for the Fund do not take into account any required payments for federal or state income taxes. Standardized Return quotations for Class B shares for periods of over eight years will reflect conversion of the Class B shares to Class A shares at the end of the eighth year. Standardized Return quotations are determined to the nearest 1/100 of 1%. The Fund may, from time to time, include in advertisements, promotional literature or reports to shareholders or prospective investors total return data that are not calculated according to the formula set forth above ("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in calculating Non-Standardized Return; a sales charge, if deducted, would reduce the return. The following table summarizes the calculation of Standardized and Non-Standardized Return for the Class A, Class B, Class C and Class I shares of the Fund for the periods indicated. In determining the average annual total return for a specific class of shares of the Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of the Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of the Fund. STANDARDIZED RETURN[*] CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] Year ended December 31, 1999 Five years ended December 31, 1999 Ten years ended December 31, 1999 Inception [#] to year ended December 31, 1999[8]: NON-STANDARDIZED RETURN[**] CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] Year ended December 31, 1999 Five years ended December 31, 1999 Ten years ended December 31, 1999 Inception [#] to year ended December 31, 1999[8]: [*] The Standardized Return figures for Class A shares reflect the deduction of the maximum initial sales charge of 5.75%. The Standardized Return figures for Class B and C shares reflect the deduction of the applicable CDSC imposed on redemption of Class B or C shares held for the period. Class I shares are not subject to an initial sales change or to a CDSC; therefore, the Non-Standardized Return Figures are identical to the Standarized Return Figures. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [#] The inception date for the Fund (Class A shares) was April 21, 1986. The inception date for Class B shares was October 23, 1993. The inception date for Class C shares was April 30, 1996. The inception date for Class I shares was October 6, 1994. [1] The Standardized Return figures for the Class A shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. Since the inception date for Class B shares was October 23, 1993, there were no Class B shares outstanding for the duration of the ten year period ended December 31, 1999. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. Since the inception date for Class C shares was April 30, 1996, there were no Class C shares outstanding for the duration of the five and ten year periods ended December 31, 1999. [4] Class I shares are not subject to an initial sales charge or a CDSC; therefore the Non-Standardized and Standardized Return figures are identical. [5] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class A shares for the period from inception through December 31, 1999 and the one, five and ten year periods ended December 31, 1999 would have been [ ], respectively. [6] The Non-Standardized Return figures for Class B shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class B shares for the period from inception through December 31, 1999 and the one and five year periods ended December 31, 1999 would have been [ ], respectively. Since the inception date for Class B shares was October 23, 1993, there were no Class B shares outstanding for the duration of the ten year period ended December 31, 1999. [7] The Non-Standardized Return figures for Class C shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized Return for Class C shares for the period from inception through December 31, 1999 and the one year period ended December 31, 1999 would have been [ ], respectively. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of the Fund for a specified period. Cumulative total return quotations reflect changes in the price of the Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in the Fund shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of the Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION [*] Class A Class B Class C Class I The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 1999, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION [*] Class A Class B Class C Class I [*] The inception date for the Fund (Class A shares) was April 21, 1986. The inception date for Class B shares was October 23, 1993. The inception date for Class C shares was April 30, 1996. The inception date for Class I shares was October 6, 1994. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for the Fund will vary from time to time depending on market conditions, the composition of the Fund's portfolio and operating expenses of the Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding the Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of the Fund's shares and the risks associated with the Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. The Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS The Fund's portfolio of investments as of December 31, 1999, Statement of Assets and Liabilities as of December 31, 1999, Statement of Operations for the fiscal year ended December 31, 1999, Statement of Changes in Net Assets for the fiscal year ended December 31, 1999, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in the Fund's December 31, 1999 Annual Report to shareholders, are incorporated by reference into this SAI. APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New York, 1997).] MOODY'S: (a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality, carrying the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa are judged by Moody's to be of high quality by all standards. Aa bonds are rated lower than Aaa bonds because margins of protection may not be as large as those of Aaa bonds, or fluctuations of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than those applicable to Aaa securities. Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa by Moody's are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. (b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Issuers within this Prime category may be given ratings 1, 2 or 3, depending on the relative strengths of these factors. The designation of Prime-1 indicates the highest quality repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have a strong ability for repayment while issuers voted Prime-3 are deemed to have an acceptable ability for repayment. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. The ratings described below may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA is judged by S&P to have a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A by S&P has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to pay interest and repay principal. Although such bonds normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than debt in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. The commercial paper rating A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. For commercial paper with an A-2 rating, the capacity for timely payment on issues is satisfactory, but not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment, but are more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. The C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. PART C. OTHER INFORMATION Item 23: Exhibits: (a) Articles of Incorporation: (1) Amended and Restated Declaration of Trust dated December 10, 1992, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Redesignation of Shares of Beneficial Interest and Establishment and Designation of Additional Series and Classes of Shares of Beneficial Interest (No Par Value) filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (4) Amendment to Amended and Restated Declaration of Trust, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (5) Establishment and Designation of Additional Series (Ivy Emerging Growth Fund), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (6) Redesignation of Shares (Ivy Growth with Income Fund--Class A) and Establishment and Designation of Additional Class (Ivy Growth with Income Fund--Class C), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (7) Redesignation of Shares (Ivy Emerging Growth Fund--Class A, Ivy Growth Fund--Class A and Ivy International Fund--Class A), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (8) Establishment and Designation of Additional Series (Ivy China Region Fund), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (9) Establishment and Designation of Additional Class (Ivy China Region Fund--Class B, Ivy Emerging Growth Fund--Class B, Ivy Growth Fund--Class B, Ivy Growth with Income Fund--Class B and Ivy International Fund--Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (10) Establishment and Designation of Additional Class (Ivy International Fund--Class I), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (11) Establishment and Designation of Series and Classes (Ivy Latin American Strategy Fund--Class A and Class B, Ivy New Century Fund--Class A and Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (12) Establishment and Designation of Series and Classes (Ivy International Bond Fund--Class A and Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (13) Establishment and Designation of Series and Classes (Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, Ivy Short-Term US Government Securities Fund (now known as Ivy Short-Term Bond Fund) -- Class A and Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (14) Redesignation of Ivy Short-Term U.S. Government Securities Fund as Ivy Short-Term Bond Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (15) Redesignation of Shares (Ivy Money Market Fund--Class A and Ivy Money Market Fund--Class B), filed with Post-Effective Amendment No. 84 and incorporated by reference herein. (16) Form of Establishment and Designation of Additional Class (Ivy Bond Fund--Class C; Ivy Canada Fund--Class C; Ivy China Region Fund--Class C; Ivy Emerging Growth Fund--Class C; Ivy Global Fund--Class C; Ivy Growth Fund--Class C; Ivy Growth with Income Fund--Class C; Ivy International Fund--Class C; Ivy Latin America Strategy Fund--Class C; Ivy International Bond Fund--Class C; Ivy Money Market Fund--Class C; Ivy New Century Fund--Class C), filed with Post-Effective Amendment No. 84 and incorporated by reference herein. (17) Establishment and Designation of Series and Classes (Ivy Global Science & Technology Fund--Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 86 and incorporated by reference herein. (18) Establishment and designation of Series and Classes (Ivy Global Natural Resources Fund--Class A, Class B and Class C; Ivy Asia Pacific Fund--Class A, Class B and Class C; Ivy International Small Companies Fund--Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (19) Establishment and designation of Series and Classes (Ivy Pan-Europe Fund--Class A, Class B and Class C), filed with Post-Effective Amendment No. 92 and incorporated by reference herein. (20) Establishment and designation of Series and Classes (Ivy International Fund II--Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (21) Form of Establishment and Designation of Additional Class (Ivy Asia Pacific Fund--Advisor Class; Ivy Bond Fund--Advisor Class; Ivy Canada Fund--Advisor Class; Ivy China Region Fund--Advisor Class; Ivy Emerging Growth Fund--Advisor Class; Ivy Global Fund--Advisor Class; Ivy Global Natural Resources Fund--Advisor Class; Ivy Global Science & Technology Fund--Advisor Class; Ivy Growth Fund--Advisor Class; Ivy Growth with Income Fund--Advisor Class; Ivy International Bond Fund--Advisor Class; Ivy International Fund II--Advisor Class; Ivy International Small Companies Fund--Advisor Class; Ivy Latin America Strategy Fund--Advisor Class; Ivy New Century Fund--Advisor Class; Ivy Pan-Europe Fund--Advisor Class), filed with Post-Effective Amendment No. 96 and incorporated by reference herein. (22) Redesignations of Series and Classes (Ivy Emerging Growth Fund redesignated as Ivy US Emerging Growth Fund; Ivy New Century Fund redesignated as Ivy Developing Nations Fund; and, Ivy Latin America Strategy Fund redesignated as Ivy South America Fund), filed with Post-Effective Amendment No. 97 to Registration Statement 2-17613 and incorporated by reference herein. (23) Redesignation of Series and Classes and Establishment and Designation of Additional Class (Ivy International Bond Fund redesignated as Ivy High Yield Fund; Class I shares of Ivy High Yield Fund established), filed with Post-Effective Amendment No. 98 to Registration Statement 2-17613 and incorporated by reference herein. (24) Establishment and designation of Series and Classes (Ivy US Blue Chip Fund--Class A, Class B, Class C, Class I and Advisor Class), filed with Post-Effective Amendment No. 101 to Registration Statement 2-17613 and incorporated by reference herein. (25) Redesignation of Series and Classes (Ivy High Yield Fund redesignated as Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (26) Establishment and designation of Series and Classes (Ivy European Opportunities Fund -- Class A, Class B, Class C, Class I and Advisor Class) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (27) Establishment and designation of Series and Classes (Ivy Cundill Value Fund -- Class A, Class B, Class C, Class I and Advisor Class) to be filed by amendment. (b) By-laws: (1) By-Laws, as amended, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (c) Instruments Defining the Rights of Security Holders: (1) Specimen Securities for Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund and Ivy Money Market Fund, filed with Post-Effective Amendment No. 49 and incorporated by reference herein. (2) Specimen Security for Ivy Emerging Growth Fund, filed with Post-Effective Amendment No. 70 and incorporated by reference herein. (3) Specimen Security for Ivy China Region Fund, filed with Post-Effective Amendment No. 74 and incorporated by reference herein. (4) Specimen Security for Ivy Latin American Strategy Fund, filed with Post-Effective Amendment No. 75 and incorporated by reference herein. (5) Specimen Security for Ivy New Century Fund, filed with Post-Effective Amendment No. 75 and incorporated by reference herein. (6) Specimen Security for Ivy International Bond Fund, filed with Post-Effective Amendment No. 76 and incorporated by reference herein. (7) Specimen Securities for Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, and Ivy Short-Term U.S. Government Securities Fund, filed with Post-Effective Amendment No. 77 and incorporated by reference herein. (d) Investment Advisory Contracts: (1) Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. and Supplements for Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund and Ivy Money Market Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Subadvisory Contract by and among Ivy Fund, Ivy Management, Inc. and Boston Overseas Investors, Inc., filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (3) Assignment Agreement relating to Subadvisory Contract, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (4) Business Management and Investment Advisory Agreement Supplement for Ivy Emerging Growth Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (5) Business Management and Investment Advisory Agreement Supplement for Ivy China Region Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (6) Business Management and Investment Advisory Supplement for Ivy Latin America Strategy Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (7) Business Management and Investment Advisory Agreement Supplement for Ivy New Century Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (8) Business Management and Investment Advisory Agreement Supplement for Ivy International Bond Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (9) Business Management and Investment Advisory Agreement Supplement for Ivy Bond Fund, Ivy Global Fund and Ivy Short-Term U.S. Government Securities Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (10) Master Business Management Agreement between Ivy Fund and Ivy Management, Inc., filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (11) Supplement to Master Business Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Canada Fund), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (12) Investment Advisory Agreement between Ivy Fund and Mackenzie Financial Corporation, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (13) Form of Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Global Science & Technology Fund), filed with Post-Effective Amendment No. 86 and incorporated by reference herein. (14) Form of Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Asia Pacific Fund and Ivy International Small Companies Fund), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (15) Form of Supplement to Master Business Management Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Global Natural Resources Fund), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (16) Form of Supplement to Investment Advisory Agreement between Ivy Fund and Mackenzie Financial Corporation (Ivy Global Natural Resources Fund), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (17) Form of Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Pan-Europe Fund), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (18) Form of Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy International Fund II), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (19) Addendum to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (20) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (21) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 to Registration Statement 2-17613 and incorporated by reference herein. (22) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (23) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (24) Subadvisory Agreement between Ivy Management, Inc. and Henderson Investment Management Limited (Ivy International Small Companies Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (25) Amendment to Subadvisory Agreement between Ivy Management, Inc. and Henderson Investment Management Limited (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (26) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Cundill Value Fund) to be filed by amendment. (27) Subadvisory Agreement between Ivy Management, Inc. and Peter Cundill & Associates (Bermuda) Ltd. (Ivy Cundill Value Fund) to be filed by amendment. (e) Underwriting Contracts: (1) Dealer Agreement, as amended, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Amended and Restated Distribution Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (3) Addendum to Amended and Restated Distribution Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (4) Addendum to Amended and Restated Distribution Agreement (Ivy Money Market Fund--Class A and Class B), filed with Post-Effective Amendment No. 84 and incorporated by reference herein. (5) Form of Addendum to Amended and Restated Distribution Agreement (Class C), filed with Post-Effective Amendment No. 84 and incorporated by reference herein. (6) Form of Addendum to Amended and Restated Distribution Agreement (Ivy Global Science & Technology Fund--Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 86 and incorporated by reference herein. (7) Form of Addendum to Amended and Restated Distribution Agreement (Ivy Global Natural Resources Fund--Class A, Class B and Class C; Ivy Asia Pacific Fund--Class A, Class B and Class C; Ivy International Small Companies Fund--Class A, Class B, Class C, and Class I), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (8) Form of Addendum to Amended and Restated Distribution Agreement (Ivy Pan-Europe Fund--Class A, Class B and Class C), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (9) Form of Addendum to Amended and Restated Distribution Agreement (Ivy International Fund II--Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (10) Form of Addendum to Amended and Restated Distribution Agreement (Advisor Class), filed with Post-Effective Amendment No. 96 and incorporated by reference herein. (11) Addendum to Amended and Restated Distribution Agreement (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (12) Addendum to Amended and Restated Distribution Agreement (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (13) Addendum to Amended and Restated Distribution Agreement (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 to Registration Statement 2-17613 and incorporated by reference herein. (14) Addendum to Amended and Restated Distribution Agreement (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (15) Addendum to Amended and Restated Distribution Agreement (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (16) Amended and Restated Distribution Agreement, filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (17) Addendum to Amended and Restated Distribution Agreement (Ivy Cundill Value Fund) to be filed by amendment. (f) Bonus or Profit Sharing Contracts: Inapplicable. (g) Custodian Agreements: (1) Custodian Agreement between Ivy Fund and Brown Brothers Harriman & Co., filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Foreign Custody Manager Delegation Agreement between Ivy Fund and Brown Brothers Harriman & Co., filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (h) Other Material Contracts: (1) Master Administrative Services Agreement between Ivy Fund and Mackenzie Investment Management Inc. and Supplements for Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund and Ivy Money Market Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Addendum to Administrative Services Agreement Supplement for Ivy International Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (3) Administrative Services Agreement Supplement for Ivy Emerging Growth Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (4) Administrative Services Agreement Supplement for Ivy Money Market Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (5) Administrative Services Agreement Supplement for Ivy China Region Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (6) Administrative Services Agreement Supplement for Class I Shares of Ivy International Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (7) Master Fund Accounting Services Agreement between Ivy Fund and Mackenzie Investment Management Inc. and Supplements for Ivy Growth Fund, Ivy Emerging Growth Fund and Ivy Money Market Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (8) Fund Accounting Services Agreement Supplement for Ivy Growth with Income Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (9) Fund Accounting Services Agreement Supplement for Ivy China Region Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (10) Transfer Agency and Shareholder Services Agreement between Ivy Fund and Ivy Management, Inc., filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (11) Addendum to Transfer Agency and Shareholder Services Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (12) Assignment Agreement relating to Transfer Agency and Shareholder Services Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (13) Administrative Services Agreement Supplement for Ivy Latin America Strategy Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (14) Administrative Services Agreement Supplement for Ivy New Century Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (15) Fund Accounting Services Agreement Supplement for Ivy Latin America Strategy Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (16) Fund Accounting Services Agreement Supplement for Ivy New Century Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (17) Addendum to Transfer Agency and Shareholder Services Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (18) Administrative Services Agreement Supplement for Ivy International Bond Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (19) Fund Accounting Services Agreement Supplement for International Bond Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (20) Addendum to Transfer Agency and Shareholder Services Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (21) Addendum to Transfer Agency and Shareholder Services Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (22) Administrative Services Agreement Supplement for Ivy Bond Fund, Ivy Global Fund and Ivy Short-Term U.S. Government Securities Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (23) Fund Accounting Services Agreement Supplement for Ivy Bond Fund, Ivy Global Fund and Ivy Short-Term U.S. Government Securities Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (24) Form of Administrative Services Agreement Supplement (Class C) for Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy Emerging Growth Fund, Ivy Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International Bond Fund, Ivy Latin America Strategy Fund, Ivy Money Market Fund and Ivy New Century Fund, filed with Post-Effective Amendment No. 84 and incorporated by reference herein. (25) Form of Addendum to Transfer Agency and Shareholder Services Agreement (Class C), filed with Post-Effective Amendment No. 84 and incorporated by reference herein. (26) Form of Administrative Services Agreement Supplement for Ivy Global Science & Technology Fund, filed with Post-Effective Amendment No. 86 and incorporated by reference herein. (27) Form of Fund Accounting Services Agreement Supplement for Ivy Global Science & Technology Fund, filed with Post-Effective Amendment No. 86 and incorporated by reference herein. (28) Form of Addendum to Transfer Agency and Shareholder Services Agreement for Ivy Global Science & Technology Fund, filed with Post-Effective Amendment No. 86 and incorporated by reference herein. (29) Form of Administrative Services Agreement Supplement for Ivy Global Natural Resources Fund, Ivy Asia Pacific Fund and Ivy International Small Companies Fund, filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (30) Form of Fund Accounting Services Agreement Supplement for Ivy Global Natural Resources Fund, Ivy Asia Pacific Fund and Ivy International Small Companies Fund, filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (31) Form of Addendum to Transfer Agency and Shareholder Services Agreement for Ivy Global Natural Resources Fund, Ivy Asia Pacific Fund and Ivy International Small Companies Fund, filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (32) Form of Administrative Services Agreement Supplement for Ivy Pan-Europe Fund, filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (33) Form of Fund Accounting Services Agreement Supplement for Ivy Pan-Europe Fund, filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (34) Form of Addendum to Transfer Agency and Shareholder Services Agreement for Ivy Pan-Europe Fund, filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (35) Form of Administrative Services Agreement Supplement for Ivy International Fund II, filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (36) Form of Fund Accounting Services Agreement Supplement for Ivy International Fund II, filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (37) Form of Addendum to Transfer Agency and Shareholder Services Agreement for Ivy International Fund II, filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (38) Form of Administrative Services Agreement Supplement (Advisor Class) for Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy Emerging Growth Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Bond Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy Latin America Strategy Fund, Ivy New Century Fund and Ivy Pan-Europe Fund, filed with Post-Effective Amendment No. 96 and incorporated by reference herein. (39) Form of Addendum to Transfer Agency and Shareholder Services Agreement (Advisor Class), filed with Post-Effective Amendment No. 96 and incorporated by reference herein. (40) Addendum to Administrative Services Agreement (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (41) Addendum to Fund Accounting Services Agreement (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (42) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund, Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (43) Addendum to Fund Accounting Services Agreement (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (44) Addendum to Administrative Services Agreement (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (45) Amended Addendum to Transfer Agency and Shareholder Services Agreement (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund, Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein (a corrected version of which was filed with Post-Effective Amendment No. 99). (46) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 to Registration Statement 2-17613 and incorporated by reference herein. (47) Addendum to Fund Accounting Services Agreement (Ivy US Blue Chip Fund), to be filed with Post-Effective Amendment No. 101 to Registration Statement 2-17613 and incorporated by reference herein. (48) Addendum to Administrative Services Agreement (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 to Registration Statement 2-17613 and incorporated by reference herein. (49) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (50) Addendum to Fund Accounting Services Agreement (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (51) Addendum to Administrative Services Agreement (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (52) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (53) Addendum to Fund Accounting Services Agreement (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (54) Addendum to Administrative Services Agreement (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (55) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy Cundill Value Fund) to be filed by amendment. (56) Addendum to Fund Accounting Services Agreement (Ivy Cundill Value Fund) to be filed by amendment. (57) Addendum to Administrative Services Agreement (Ivy Cundill Value Fund) to be filed by amendment. (i) Legal Opinion: To be filed by amendment. (j) Other Opinions: Opinions of Accountants to be filed by amendment. (k) Omitted Financial Statements: Updated financial information and reports of accountants to be filed by amendment. (l) Initial Capital Agreements: Not applicable. (m) Rule 12b-1 Plan: (1) Amended and Restated Distribution Plan for Class A shares of Ivy China Region Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund and Ivy Emerging Growth Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Distribution Plan for Class B shares of Ivy China Region Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund and Ivy Emerging Growth Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (3) Distribution Plan for Class C Shares of Ivy Growth with Income Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (4) Form of Rule 12b-1 Related Agreement, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (5) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (6) Supplement to Distribution Plan for Ivy Fund Class B Shares, filed with Post-Effective Amendment No. 103 and incorporated by reference herein. (7) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares, filed with Post-Effective Amendment No. 103 and incorporated by reference herein. (8) Supplement to Distribution Plan for Ivy Fund Class B Shares, filed with Post-Effective Amendment No. 103 and incorporated by reference herein. (9) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares, filed with Post-Effective Amendment No. 103 and incorporated by reference herein. (10) Supplement to Distribution Plan for Ivy Fund Class B Shares, filed with Post-Effective Amendment No. 103 and incorporated by reference herein. (11) Form of Supplement to Distribution Plan for Ivy Growth with Income Fund Class C Shares (Redesignation as Class D Shares), filed with Post-Effective Amendment No. 84 and incorporated by reference herein. (12) Form of Distribution Plan for Class C shares of Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy Emerging Growth Fund, Ivy Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International Bond Fund, Ivy Latin America Strategy Fund and Ivy New Century Fund, filed with Post-Effective Amendment No. 85 and incorporated by reference herein. (13) Form of Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy Global Science & Technology Fund), filed with Post-Effective Amendment No. 87 and incorporated by reference herein. (14) Form of Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy Global Science & Technology Fund), filed with Post-Effective Amendment No. 87 and incorporated by reference herein. (15) Form of Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy Global Science & Technology Fund), filed with Post-Effective Amendment No. 87 and incorporated by reference herein. (16) Form of Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy Global Natural Resources Fund, Ivy Asia Pacific Fund and Ivy International Small Companies Fund), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (17) Form of Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy Global Natural Resources Fund, Ivy Asia Pacific Fund and Ivy International Small Companies Fund), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (18) Form of Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy Global Natural Resources Fund, Ivy Asia Pacific Fund and Ivy International Small Companies Fund), filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (19) Form of Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy Pan-Europe Fund), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (20) Form of Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy Pan-Europe Fund), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (21) Form of Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy Pan-Europe Fund), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (22) Form of Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy International Fund II), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (23) Form of Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy International Fund II), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (24) Form of Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy International Fund II), filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (25) Amendment to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (26) Amendment to Distribution Plan for Ivy Fund Class B Shares (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (27) Amendment to Distribution Plan for Ivy Fund Class C Shares (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (28) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (29) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (30) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (31) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 and incorporated by reference herein. (32) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 and incorporated by reference herein. (33) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 and incorporated by reference herein. (34) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (35) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (36) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (37) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (38) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (39) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (40) Form of Distribution Plan For Ivy Fund Class B Shares, filed with Post-Effective Amendment No. 107 and incorporated by reference herein. (41) Amended and Restated Distribution Plan for Ivy Fund Class A Shares, filed with Post-Effective Amendment No. 111. (42) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy Cundill Value Fund) to be filed by amendment. (43) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy Cundill Value Fund) to be filed by amendment. (44) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy Cundill Value Fund) to be filed by amendment. (n) Rule 18f-3 Plans: (1) Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 83 and incorporated by reference herein. (2) Form of Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 85 and incorporated by reference herein. (3) Form of Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 87 and incorporated by reference herein. (4) Form of Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 89 and incorporated by reference herein. (5) Form of Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 92 and incorporated by reference herein. (6) Form of Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 94 and incorporated by reference herein. (7) Form of Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 96 and incorporated by reference herein. (8) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 98 and incorporated by reference herein (a corrected version of which was filed with Post-Effective Amendment No. 99). (9) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 101 to Registration Statement 2-17613 and incorporated by reference herein. (10) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (11) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, to be filed by amendment. (o) Codes of Ethics: To be filed by amendment. Item 24. Persons Controlled by or Under Common Control with the Fund: Not applicable Item 25. Indemnification A policy of insurance covering Ivy Management, Inc. and the Registrant will insure the Registrant's trustees and officers and others against liability arising by reason of an actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or other negligent act. Reference is made to Article VIII of the Registrant's Amended and Restated Declaration of Trust, dated December 10, 1992, filed with Post-Effective Amendment No. 71 and incorporated by reference herein. Item 26. Business and Other Connections of Investment Adviser Information Regarding Adviser and Subadviser Under Advisory Arrangements. Reference is made to the Form ADV of each of Ivy Management, Inc., the Adviser and Business Manager to the nineteen series of the Trust, Mackenzie Financial Corporation, the adviser to Ivy Global Natural Resources Fund, Northern Cross Investments Limited (the successor to Boston Overseas Investors, Inc.), the adviser to Ivy International Fund, Henderson Investment Management Limited, the subadviser to Ivy European Opportunities Fund and a portion of Ivy International Small Companies Fund, and Peter Cundill & Associates, Inc., the subadviser to Ivy Cundill Value Fund (a new series of the Trust included in Post-Effective Amendment No. 111). The list required by this Item 26 of officers and directors of Ivy Management, Inc., Mackenzie Financial Corporation, Northern Cross Investments Limited, Henderson Investment Management Limited, and Peter Cundill & Associates (Bermuda) Ltd., together with information as to any other business profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Schedules A and D of each firm's respective Form ADV. Item 27. Principal Underwriters (a) Ivy Mackenzie Distributors, Inc. ("IMDI"), formerly Mackenzie Ivy Funds Distributors, Inc., Via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, Florida 33432, Registrant's distributor, is a subsidiary of Mackenzie Investment Management Inc. ("MIMI"), Via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, Florida 33432. IMDI is the successor to MIMI's distribution activities. IMDI also serves as the distributor for Mackenzie Solutions. (b) The information required by this Item 27 regarding each director, officer or partner of IMDI is incorporated by reference to Schedule A of Form BD filed by IMDI pursuant to the Securities Exchange Act of 1934. (c) Not applicable Item 28. Location of Accounts and Records The information required by this item is incorporated by reference to Item 7 of Part II of Post-Effective Amendment No. 46. Item 29. Management Services: Not applicable. Item 30. Undertakings: Not applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment No. 112 to its Registration Statement pursuant to Rule 485(a)(1) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 112 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, and the Commonwealth of Massachusetts, on the 28th day of February, 2000. IVY FUND BY: JAMES W. BROADFOOT*** --------------------- President By: /S/ JOSEPH R. FLEMING Joseph R. Fleming, Attorney-in-Fact Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 112 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURES TITLE DATE JOHN S. ANDEREGG, JR.* Trustee 2/28/00 PAUL H. BROYHILL* Trustee 2/28/00 JAMES W. BROADFOOT*** Trustee and President 2/28/00 KEITH J. CARLSON** Trustee and Chairman 2/28/00 (Chief Executive Officer) STANLEY CHANNICK* Trustee 2/28/00 C. WILLIAM FERRIS* Treasurer (Chief 2/28/00 Financial Officer) ROY J. GLAUBER* Trustee 2/28/00 JOSEPH G. ROSENTHAL* Trustee 2/28/00 RICHARD N. SILVERMAN* Trustee 2/28/00 DIANNE LISTER*** Trustee 2/28/00 J. BRENDAN SWAN* Trustee 2/28/00 EDWARD M. TIGHE*** Trustee 2/28/00 By: /S/ JOSEPH R. FLEMING Joseph R. Fleming, Attorney-in-Fact * Executed pursuant to powers of attorney filed with Post-Effective Amendments Nos. 69, 73, 74, 84 and 89 to Registration Statement No. 2-17613. ** Executed pursuant to power of attorney filed with Post-Effective Amendment No. 89 to Registration Statement No. 2-17613. *** Executed pursuant to power of attorney filed with Post-Effective Amendment No. 111 to Registration Statement No. 2-17613. -----END PRIVACY-ENHANCED MESSAGE-----